Active Momentum Funds Timing the Market or Tapping the Trend?

Abhishek Wani evaluates whether India's active momentum funds are skillfully timing markets or simply riding trends. By dissecting strategies of Samco and Quant, he scrutinizes the fine line between tactical rotation and disciplined trend-following in a volatile momentum investing landscape

- 

Momentum investing has attracted growing interest from investors in recent years, especially during strong bull markets when stock prices seemed to move only in one direction, up. But the real question is: does this approach involve skillfully timing the market, or simply riding established trends? And perhaps more importantly, how does the strategy hold up when markets reverse course?

At its core, momentum investing is built on a straightforward idea: stocks that have been rising are likely to continue rising in the near future, while those that are falling tend to keep falling, at least for a while. Instead of searching for undervalued stocks, momentum investors look for those already showing strong recent performance and try to ride the wave. When this works, the rewards can be impressive. This is why actively managed momentum funds, which aim to identify such winners using technical models and market signals, have become increasingly popular.

But as every seasoned investor knows, markets are unpredictable and can turn sharply. Between September 2024 and April 2025, the Indian market underwent a steep correction. Investors who had earlier enjoyed fast gains with momentum funds found themselves facing significant losses. These funds, once the stars of a rising market, became some of the worst performers during the downturn. The same trend-chasing approach that delivered outsized returns in good times became a liability when sentiment shifted. This is the double-edged sword of momentum investing; its success is tightly linked to prevailing market trends, and its weakness is exposed when those trends break.

What is momentum investing, really?