Thematic investing—gaining from a wide range of sectors

INVESTOR PREFERENCES for various market caps or sectors and themes tend to vary at different points in time.

- BY SANJANA RAMESH

Whether any theme could see underlying sectors/segments rally or correct, depends on a host of business, macroeconomic and geopolitical factors. Who would have imagined a 25 per cent correction was coming in benchmark indices from September 2024 to early April 2025 after a stupendous multiyear rally earlier?

In the last 11 calendar years (2014-2024), the Nifty indices tracking banks were the best performers in four years, IT in two years, pharmaceuticals in three years, automobiles and commodities for one year each.

For retail investors, it would be nearly impossible to arrive at a decision on which theme would click at a given point in time.

Three specific challenges confront investors in arriving at the right conclusions. First, the inability to make the connection between macro factors and theme performance due to lack of expertise and time constraints. Second, the difficulty in containing emotions—fear and greed—especially during market extremes is a critical challenge. Third, the ability to shuffle and exit holdings in a tax-efficient way hurts or erodes overall returns.

To overcome these challenges, taking the mutual fund route is ideal for retail investors.

Theme identification challenges

As mentioned earlier, zeroing in on the right theme is fraught with difficulties for most investors.