Understanding Sectoral Rotation in Markets
A sectoral rotation chart is a great tool to track how different sectors perform over the years. Our team has analyzed this across the last 8-9 years to rank sectors based on their annual performance.
Sector Performance Over the Years
IT & Pharma were at the bottom in 2016-17 but climbed to the top in 2018 and 2021, then fell again in 2022-23 before making a comeback in 2024.
Real Estate was the best-performing sector in 2017 and 2019, but it underperformed in 2018. It then topped in 2023 and continued strong in 2024.
PSU Banks were among the worst-performing sectors from 2016 to 2020 but suddenly became the best in 2021. However, they declined again in 2023-24.
This pattern highlights that different sectors outperform at different times, and no single sector remains dominant indefinitely.
Why Sector Rotation is Important
Markets are cyclical, and sectors move in and out of favor. A sector that has performed well for several years may slow down as valuations peak and ownership saturates. Investors gradually exit, causing underperformance, while other undervalued or under-owned sectors take the lead.
To maximize gains, one must identify and invest in the rising sectors while exiting those that have already peaked. This approach, known as “saluting the rising sun,” ensures that your portfolio remains aligned with momentum rather than stagnating in sectors that may not deliver returns for years.
Applying Sector Rotation in Your Investment Strategy
Rather than staying emotionally attached to a sector, it is crucial to stay flexible and move toward emerging trends. If you find it challenging to track these sectoral shifts manually, momentum investing can help, as it automatically rotates into performing sectors and exits laggards.
WeekendInvesting launches – Portfolio Momentum Report
Momentum Score: See what percentage of your portfolio is in high vs. low momentum stocks, giving you a snapshot of its performance and health.
Weightage Skew: Discover if certain stocks are dominating your portfolio, affecting its performance and risk balance.
Why it matters
Weak momentum stocks can limit your gains, while high momentum stocks improve capital allocation, enhancing your chances of superior performance.
Disclaimers and disclosures : https://tinyurl.com/2763eyaz
