Momentum Leads the Race
Factor investing means choosing stocks based on a certain quality or pattern. Different factors can give different results over time. Since 2010, one factor has clearly stood out: momentum investing. If ₹1 was invested in different styles, momentum turned it into ₹27.1.
Quality turned it into ₹16.6, growth into ₹13.8, and low volatility into ₹13.4. Value reached ₹9.4, while the benchmark grew to only ₹6.7.
A Huge Gap
The gap between momentum and the other factors is hard to ignore. Momentum grew much faster than growth, giving almost twice the return over the period.
This shows why momentum deserves more attention from investors. It is not just about one good period. Momentum has shown strong results across many studies in both Indian and US markets.
Follow Market Strength
The main idea behind momentum investing is simple: stay with what is showing strength. Market leadership keeps changing. A sector that is leading today may become weak later. When that happens, another sector can take its place. Momentum investing tries to move with this change instead of staying invested in a weak sector for years.
Do Not Hold Weak Sectors
Imagine your money is travelling on a fast-moving train. If that train starts slowing down while another train is moving much faster, it may make sense to move to the faster train. This is similar to how momentum works. Instead of waiting for a weak sector to recover, the approach looks for areas where the market is showing stronger movement.
Reduce Opportunity Cost
Staying in a weak sector for a long time can have a hidden cost. Your money remains stuck while other parts of the market may be moving higher. Momentum tries to reduce this opportunity cost by moving towards stronger areas of the market. If everything is weak, the focus can remain on the area that is falling the least or showing the most strength.
Give Momentum a Look
Momentum investing may not always be popular, but its long-term record deserves attention. The growth of ₹1 into ₹27.1 compared with ₹6.7 for the benchmark shows the large difference over the period discussed. Market leadership will always change, and momentum aims to stay close to that change. For investors looking at factor investing, momentum is a factor worth studying instead of ignoring or being biased against.
