Thematic Investing – The current investment trend

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While the global markets are currently going through a bout of volatility on account of surging inflation, the Indian markets have managed to be unaffected to a certain extent and has been fairly steady. As the world awaits the Fed’s decision to rein in US’ inflation, all eyes are on the stock markets and how they will absorb the shock that is to follow.

A trend that we have been witnessing for the last few weeks is that even though the benchmark indices have managed to end most of the days in the green, it is the broader markets that have outperformed the benchmark indices, and kept Dalal Street floating above its global peers. Nifty Midcap and Smallcap indices have, in fact, acted as shock absorbers and balanced out the Indian equity markets.

Many market experts and veterans are pointing this out, and are identifying a trend here. Similarly, during different market cycles, there always turns out to be a particular group of stocks, usually clubbed into a sector that turns out to do well, sometimes even when the market displays an overall negative sentiment. These stocks tend to do well in the long run too, based on the overall situation and economic development in the country.

What are thematic investments?

A theme is a macro-level trend, and underlying investments stand to benefit from that trend. For example, if India is going through an infrastructure boom, then there will be demand for items such as cement, construction materials, builders and architects, civil engineering expertise, etc. So, the stocks of these sectors will be expected to perform well, making infrastrucure a theme.

Or for instance, if India’s policies focus on a push to the tertiary or the services sector, then services would become a theme, and stocks in the banking, insurance, IT, etc will become thematic names.

Let’s take the most recent example- the National Logistics Policy that was announced on September 17 is a push to expand India’s manufacturing capacities. These policies are aimed at the long-term growth of the logistics and transportation sector. Hence, logistics would become a thematic investment opportunity.
To understand more about thematic investing, we were joined by Siddharth Srivastava, Head-ETF Products at Mirae Asset Global Investments. He said that themes can be diverse and can cut across various sectors. He added that one must enter at the correct time, before it’s too late and the theme has already taken off.

Who is thematic investing for?

While everyone can opt for thematic investment, it is usually advised to have better market understanding before diving into this method of investing. Since this method is partly based on speculation, one must be careful before investing money through this method. For fledgling investors, Srivastava recommended the large-cap space as a good point to begin their journey.

The Pros and the Cons of Thematic Funds

Srivastava said that while on one hand thematic funds can give an investor exposure to different cos as well as different markets, on the other, they carry higher risk than other funds.

While investing in thematic funds may seem like a prudent investment strategy, it is always advisable to read and research a particular company/sector, and to consult a financial expert before you invest your money.