Momentum investing is often seen as a style in itself. But it’s more of a strategy of movement than one of static style.
What makes momentum particularly powerful is its ability to go where the action is: whether that means pivoting across sectors, shifting between large and mid-sized stocks, or blending both top-down and bottom-up thinking. This inherent flexibility is one of the most overlooked strengths of momentum investing.
Beyond style labels
While many investment strategies are locked into predefined categories like “value,” “growth,” or “quality,” momentum doesn’t adhere to such silos. It doesn’t anchor itself to a fixed label. Instead, it follows prevailing trends and investor flows, automatically aligning with whatever segment of the market is in favour.
This dynamic orientation allows momentum to adapt not only across cycles but also across market themes and structural shifts. Thus, it is more resilient in times when traditional styles fall out of sync with market reality.
Any sector can be hot
Unlike thematic investing, which pre-selects sectors based on conviction, momentum investing responds to actual market behaviour. Whether it's banking, pharma, manufacturing, or technology, any sector can pick up momentum depending on business cycles, macro trends, or capital rotation.
This means the opportunity universe is far broader. When sectors like IT lead due to digital adoption, or defence stocks move on government policy, momentum strategies automatically flow into them. There’s no need to forecast sector winners, as the trend itself reveals where to look.
Size doesn’t matter
Momentum also cuts across market capitalisation boundaries. It’s not restricted to blue-chip names or niche small caps. If the underlying momentum is strong, whether in a ₹2 lakh crore firm or a ₹2,000 crore one, the strategy has room to participate.
Flows into small- and mid-cap segments (SMIDs), especially during bull phases, often create sharp price moves. Momentum investors can capitalise on this without being locked into a market cap filter.
Conversely, when large caps are in favour for their stability or earnings visibility, the strategy adjusts accordingly.
Blending top-down and bottom-up
One of the most compelling aspects of modern momentum investing is how it merges macro awareness with micro insight. It is not purely technical or mechanical. Rather, many strategies today integrate both top-down filters (broad economic, policy, or sector-level signals) with bottom-up stock selection.
This combined view allows investors to identify momentum themes at a sector or theme level, as well as isolate the strongest individual stocks within those spaces.
Structured, analyst-led process
Momentum isn’t just about chasing charts. It can be rooted in research.
In such approaches, fundamentally strong companies are starting points. They are next screened and proprietary models used to identify a smaller set of stocks who show sustainable momentum.
This process culminates in a focussed portfolio, around 40-50 stocks, selected not just for speed but also for sustainability. This demonstrates how momentum investing, far from being reactive or speculative, can be deeply systematic.
Conclusion
Momentum doesn’t sit still, or get boxed into styles, sectors, or market cap limits. Instead, it flows with conviction, led by actual performance, not assumptions.
For investors who want a strategy that adjusts with the market and follows real trends, momentum investing offers a smart and flexible approach. It doesn’t follow hype blindly. Instead, it chooses carefully, moves with purpose, and stays one step ahead.
Chasing momentum isn’t easy when you’re juggling emotions, delayed reactions, and limited tools. Mutual fund managers, equipped with models and real-time systems, are better placed to ride trends without second-guessing.
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