Understand Thematic investing opportunities for long run
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Thematic Investing Opportunities for the Long Term
The Indian economy has managed to stand tall despite the pressures being applied by the pandemic and the war between Russia and Ukraine. With a stable government focused on economic growth and infrastructure development, the Indian economy is poised for a period of sustained and robust expansion. According to a recent UN report[1], India is expected to grow by 6.4% this year. While the projection has been lowered from last year’s 8.8% due to the impact of geopolitical unrest, India is still the fastest growing major economy in the world. In fact, India’s projected growth rate is more than double that of the global economy, which is now expected to grow by only 3.1% in 2022. With India entering its Amrit Kaal, and moving steadily towards 100 years of Independence, there are strong cues for long term structural growth, boosted by the alignment of various economic parameters. Given the country’s massive youth population, and its potential for growth, in terms of both scale and capability, India’s economy is expected to grow for the next 15 to 20 years, that too, at a remarkable pace.
The progressive ruling government is keen on initiatives such as AatmaNirbhar Bharat and Digital India, and this has opened up huge tailwinds for sectors such as digitization, electronics, manufacturing, infrastructure, etc. Considering the technology sector, there are multiple emerging opportunities in the industry, with almost all sectors now depending on technology for innovative solutions. Businesses are now harnessing technology to boost scale, develop novel use cases and facilitate seamless customer experiences, making the case for sustained growth in the overall tech segment.
Another sector likely to flourish over the medium to long term is electric vehicles. People are becoming more climate- and environment-conscious in their decisions, and, with the prices of crude oil surging, the time is right to make a move, from fuel-based vehicles to electric modes of transport. Popular companies like Ola and Tata are making strong headway in the sector, with electric models now available in both the 2- and 4-wheeler categories. As more and more people are poised to veer towards electric choices, the EV sector is in for tremendous growth, making it a structurally potent opportunity for investors.
Thematic Investing
The simple concept behind thematic investing involves pursuing structurally strong themes in the quest for market-beating returns. Focused on predicted long-term trends, thematic investments allow you to build positions based on your outlook for the future. For instance, if you strongly believe that the Indian economy will be bolstered by technology in the years ahead, you can invest your corpus in technology sector companies like Infosys, Tech Mahindra, TCS, etc. and wait for your prediction to bear results. However, as individual investors, it may be difficult for you to choose the right theme and invest your money across the different companies driving the sector. In this scenario, how can you, as an investor, benefit from the long-term structural potential offered by thematic investing?
Opportunities for the long term
A great way to enjoy the benefits of well curated themes is to choose the mutual fund route. Most asset management companies offer you a variety of thematic investing options to choose from, with a sound rationale and projection, and all you have to do is pick the one that best aligns with your vision of the future. Investing via a mutual fund scheme will also help you participate in the growth of all the companies in the chosen sector, instead of investing in the stocks of just one or two companies, thus enhancing your potential for returns and limiting your risk.
Thematic funds are usually categorised as very high risk, as they are based on predictions and projected numbers. However, if you are keen on investing in the equity sector, and are prepared to bet on your vision, thematic funds offer great opportunities to beat the market. Further, your portfolio diversification will be limited if you only invest in a specific sector or theme, and this may pose added risk to your corpus. It is, therefore, advisable to diversify your portfolio and hedge your thematic investment with other investments in low risk asset classes.
If you are eager to invest in thematic funds, remember to stay invested for the longer term as most of the emerging themes are structural in nature and will require anywhere between 5 to 10 years to pan out successfully. Click here
Frequently Asked Questions
How does long-term thematic investing differ from traditional investing?
Long-term thematic investing focuses on specific themes or trends, such as renewable energy, technology, or ESG, aligning investments with areas of future growth and innovation. In contrast, traditional investing prioritizes broad diversification across sectors, geographies, or asset classes to minimize risk. Thematic investing is more concentrated, offering higher potential returns but with increased exposure to specific market risks.
What are the key benefits of long-term thematic investing?
Thematic investing allows investors to capitalize on emerging global or domestic trends, often leading to significant long-term growth potential. It also provides an opportunity to align investments with personal values or beliefs.
Are thematic investments suitable for all types of investors?
Thematic investments are best suited for investors with a higher risk tolerance and a long-term investment horizon, as themes may take time to realize their full potential.
How do I choose a theme for long-term investing?
Selecting a theme requires understanding global trends, analyzing its growth potential, and assessing how companies within the theme are positioned for the future. For example, themes like electric vehicles or artificial intelligence have shown significant potential.
What are the risks associated with long-term thematic investing?
Thematic investing is inherently concentrated and relies on the success of a specific trend. If the theme underperforms or faces regulatory or market hurdles, it may impact the returns.
How can thematic investing be incorporated into a diversified portfolio?
While thematic investing focuses on specific trends, it can complement a diversified portfolio by adding exposure to high-growth areas. It’s recommended to limit thematic investments to a smaller percentage of your portfolio to manage risk.
What should I monitor when investing in a thematic fund for the long term?
Investors should monitor the theme’s performance and continued relevance over time, as market trends or technological advancements could shift its growth potential. Additionally, track regulatory changes, the financial health of companies within the theme, and macroeconomic factors that may influence the sector. It’s advisable to review thematic investments at least quarterly or semi-annually to ensure they still align with your financial goals.
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