Momentum Investing

Can you make money simply by buying what is already going up? Momentum investing says yes, at least often enough to matter, and it has become one of India's most talked-about factor strategies.

The idea behind chasing winners

Momentum rests on a behavioural quirk: trends persist longer than they logically should. Investors are slow to fully price in good news, then pile in late, so a rising stock keeps rising for a while. The strategy flips the comfortable instinct to "buy low" on its head. You buy high, hoping to sell higher.

The catch is that momentum works until it violently does not. When the market turns, yesterday's leaders fall hardest, which is why momentum portfolios can suffer sharp drawdowns.

How Indians actually access it

You do not have to pick momentum stocks yourself. The Nifty200 Momentum 30 index, run by NSE Indices, selects 30 stocks from the Nifty 200 that score highest on price momentum and weights them accordingly, rebalancing periodically so fading names drop out.

Several fund houses, including Motilal Oswal, UTI, HDFC, ICICI Prudential, Bandhan and Aditya Birla Sun Life, offer index funds and ETFs tracking this benchmark. These are smart-beta products: passive in that they follow rules, active in that the rules tilt toward a factor. When you compare them, look at expense ratio, tracking difference, liquidity (for ETFs) and how often they rebalance.

Should it be in your portfolio?

Momentum tends to shine in trending bull markets and stumble in choppy or sharply reversing ones, so it is not a set-and-forget core holding for everyone. Many disciplined investors use it as a satellite allocation alongside a broad index fund, not as the whole show.

Remember the tax angle too: equity fund gains held over a year are long-term, taxed at the prevailing LTCG rate above the annual exemption, while frequent churn in a self-managed momentum book can trigger short-term gains taxed higher.

The takeaway: momentum is a real, researched edge, but it demands a strong stomach. Size it small, expect rough patches, and let the index rules do the unsentimental selling for you.