Thematic Investing – The current investment trend


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While global markets are currently going through a period of volatility due to rising inflation, Indian markets have been able to remain somewhat unaffected and have remained fairly stable. As the world awaits the Fed’s decision to rein in US inflation, all eyes are on stock markets and how they will absorb the shock that follows.

One trend we’ve observed over the past few weeks is that while the benchmark indices have managed to end most days in the green, it is the broader markets that have outperformed the benchmark indices and the Dalal Global colleagues hovered above Street. Skillful mid-cap and small-cap indices have indeed acted as a shock absorber and balanced Indian equity markets.

Many market experts and veterans point this out and recognize a trend here. Similarly, during various market cycles it turns out that there is always a particular group of stocks that are usually assigned to a sector that is performing well, sometimes even when the market as a whole is showing negative sentiment. These stocks also tend to perform well over the long term based on the country’s overall situation and economic development.

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What are thematic investments?

A theme is a macro-level trend, and underlying assets can benefit from that trend. For example, if India goes through an infrastructure boom then there will be a demand for items like cement, building materials, contractors and architects, civil engineering skills and so on. As such, stocks in these sectors are expected to perform well. Make infrastructure an issue.

Or, for example, if India’s policy focuses on a push into the tertiary or service sector, then services would become a theme and stocks in banking, insurance, IT, etc. would become thematic names.

Take the most recent example – the National Logistics Policy, announced on September 17th, is a push to expand India’s manufacturing capacity. These guidelines are aimed at the long-term growth of the logistics and transport sector. This would make logistics a thematic investment opportunity.
Siddharth Srivastava, Head ETF Products at Mirae Asset Global Investments, joined us to learn more about thematic investing. He said issues can be diverse and cut across different sectors. He added that one has to jump in at the right time, before it’s too late and the topic has already taken off.

Who is thematic investing suitable for?

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While anyone can choose to invest in thematic investing, it is usually advisable to have a better understanding of the market before delving into this investment method. Since this method is partly based on speculation, one must be cautious before investing any money through this method. For young investors, Srivastava recommended the large-cap space as a good starting point for their journey.

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The pros and cons of thematic funds

Srivastava said that while thematic funds can give an investor exposure to different cos and different markets, they also carry a higher level of 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 specific company/sector and consult a financial expert before investing your money.

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