After two strong years in 2023 and 2024, value-oriented mutual funds have delivered a mixed bag in 2025. The Nifty50 Value 20 index, the large-cap value benchmark, has been largely flat, while the multi-cap-focused Nifty500 Value 50 has clocked a healthy 12 per cent year-to-date. Meanwhile, the overall value category managed to deliver just 4 per cent. The dispersion within funds, too, has been stark: ICICI Prudential value leads with a 13 per cent gain, whereas LIC MF value fund slipped 6 per cent into the red. Nearly two-thirds of schemes posted returns below five per cent.

With value investing being deeply cyclical, it’s worth revisiting how the category has behaved, what fund managers are betting on, and whether the style still holds relevance.

There are currently 21 schemes in the value category. As per SEBI rules, these funds must invest at least 65 per cent in equities but enjoy considerable flexibility across sectors and market caps — within a disciplined valuation-driven framework. Managers typically hunt for stocks trading below their intrinsic value using metrics such as P/E, P/B, earnings yield, cash flows, dividend yield, ROE and ROCE, relying primarily on bottom-up stock selection.

The core idea is simple: buy companies with strong fundamentals but depressed prices due to temporary market pessimism, hold through volatility, and wait for earnings recovery and sentiment rerating. Portfolios are diversified, turnover is usually lower, and the payoff lumpy: long stretches of underperformance can be followed by sharp catch‑ups.

Cycles define the value style

Value funds have historically moved in cycles. After a dull post-Covid phase, they rebounded strongly in 2021 with a 36 per cent return, beating the Nifty 500 TRI’s 32 per cent. Economic reopening, a rebound in cyclicals and broader market undervaluation helped, while high inflation and rising rate expectations pushed investors towards banking, energy and industrials. Stocks such as ONGC, Tata Motors, Bharti Airtel and Hindalco were key performance drivers.

The tide turned in 2022. Value funds delivered just six per cent. With inflation staying sticky, central banks hiking policy rates aggressively and recession worries mounting, markets shifted to growth and quality. Funds that held IT and pharma stocks such as Wipro, Tech Mahindra, Mphasis, Ipca Laboratories and Alkem Laboratories saw their returns deteriorate.

The next turnaround came in 2023 and 2024 when value funds delivered 34 per cent and 20 per cent respectively. Strong GDP growth, easing inflation and a pickup in corporate earnings brought focus back to cyclicals. Banking, capital goods, energy and selective large-caps helped value funds reclaim leadership. Stocks such as Bajaj Auto, HPCL, L&T, Coal India and HCL Technologies contributed meaningfully to NAV expansion.

2025: A tale of positioning

In 2025, the leaders are those who leaned early into oil & gas, mid-cap IT, hospitals and select pharma, PSU banks and life insurers. ICICI Prudential value and DSP value have benefited from sizable allocations to Reliance Industries, HDFC Life, SBI Life, Maruti Suzuki, Hero MotoCorp and pharma majors like Sun Pharma and Lupin — positions built patiently through 2023–24.

Funds with heavy small-cap exposure, however, have lagged. JM Value, LIC MF Value, ITI Value, ABSL Value and Quant Value carried small-cap weights as high as 30–45 per cent, which hurt in a year when market breadth narrowed. In contrast, ICICI Pru, HDFC, Sundaram and UTI Value funds stayed firmly anchored in large-caps, with allocations ranging from 65–80 per cent.

The Nifty500 Value 50 index has also outpaced the large-cap-heavy Nifty50 Value 20 index, thanks to higher exposure to mid- and small-cap financials. Stocks like RBL Bank, Manappuram Finance, City Union Bank, Indian Bank and Canara Bank have surged 40–87 per cent over the past year, lifting the Nifty500 Value 50’s performance.

Most fund managers are currently overweight in IT, oil & gas, healthcare and FMCG.

What should investors do?

Long-term NSE index data show that while value investing delivers strong excess returns over cycles, it can test patience. Value funds tend to do well during economic recoveries and inflationary regimes, when cheap assets rebound sharply. Conversely, they often underperform in liquidity-driven bull markets and when momentum takes precedence over fundamentals.

Value-oriented mutual funds deserve a place in an investor’s long-term equity strategy. They provide exposure to fundamentally strong, attractively priced businesses that can deliver better returns in the long run. While the style demands patience and has its share of value traps, disciplined value investing executed through well-managed funds — adds both diversification and return potential to a well-rounded portfolio.

Investors should prioritise funds with strong long-term track records. Five-year rolling return analysis over the past seven years shows ICICI Prudential value and Bandhan value delivering around 26 per cent CAGR. Schemes rated four and five stars on bl.portfolio’s Star Track can also be considered. Investors seeking cost-efficient, benchmark-aligned returns can opt for passive index funds, ETFs, and smart beta funds.

A minimum time horizon of seven years is crucial for this style to play out.

Published on December 6, 2025