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Value stocks have outperformed growth stocks so far in this calendar year. The MSCI World Value index has given returns of 9% in 2021 so far, while the MSCI World Growth index is lagging with nearly 1% returns, showed Bloomberg data.

Value stocks are those which investors find undervalued relative to their earnings and growth potential. Growth stocks, as the name suggests, are those which are expected to grow faster than the market average.

Analysts at domestic brokerage house ICICI Securities Ltd point to an array of favourable factors, which are aiding the performance of value stocks. In a report dated 15 March, they said, value rotation continues as US equities hit all-time high on subdued inflation, steady growth and global central banks pledging an accommodative stance.

Also, investors should note that this outperformance in the value index comes on a low base. In the calendar year 2020, MSCI World Value index was down nearly 4%, significantly underperforming the MSCI World Growth index, which gave 33% returns. In fact, in the last ten years, value stocks have underperformed growth stocks, showed Bloomberg data.

In one of their reports released in 2020, analysts at JP Morgan had pointed out that rising commodity prices have historically tended to coincide with the outperformance of value stocks. They further added that, rising interests do often benefit financial stocks, and therefore support value investing.

Recently, fears of inflation making a comeback have spooked bond and equity market investors. Higher inflation could mean reversal of ultra-loose monetary policy stance of the global central bank. The US Federal Reserve, Bank of Japan and Bank of England are scheduled to meet this week. Global central banks are expected to maintain a status quo on interest rates; however, their commentary on inflation will be keenly watched by investors.

Saira Malik, chief investment officer and head of equities at Nuveen Asset Management, is, meanwhile, rooting for growth stocks.

"Growth stocks have sold off this year as US Treasury yields have risen. This makes logical sense, as a higher discount rate results in a lower valuation for long duration growth stocks. But it is likely a one-time adjustment that has already happened. Many growth stocks have already fallen between 15% to 20%. We think this could represent an attractive entry point, as we expect Treasury yields could pause given that the Fed should remain on hold and non-U.S. bond yields are even further depressed," she said in her blog on 15 March.

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