Market value is the current price at which an asset can be bought or sold in the market.
Intrinsic value, also called fundamental value, is the estimated true value of an asset based on its future cash flows, risk, growth, and other investment factors.
In a highly efficient market, investors believe that market value is close to intrinsic value. But in an inefficient market, market value and intrinsic value may differ. This difference creates opportunities for active investors.
Example:
Suppose a stock is trading at ₹800 in the market. After analyzing the company, an investor estimates its intrinsic value at ₹1,000.
Here:
Market value = ₹800
Intrinsic value = ₹1,000
The stock is undervalued by:
₹1,000 – ₹800 = ₹200
Percentage undervaluation:
₹200 / ₹1,000 × 100 = 20%
This means the stock is trading 20% below its estimated fair value. An investor may buy the stock expecting that the market price will move closer to intrinsic value in the future.
On the other hand, if a stock is trading at ₹1,200 but its intrinsic value is only ₹1,000, it is overvalued by ₹200, or 20%.
So, investors compare market value with intrinsic value to decide whether an asset is undervalued, fairly valued, or overvalued.