Author: K P Venkataramakrishnan, Director, VIRUKSHAM FINMART PRIVATE LIMITED
What is the single most important factor that turns an ordinary portfolio into a long-term outperformer—one that is capable of compounding at 15% or even more over the extended periods? While the blue-chip stocks form the essential foundation of any type of portfolio, their weights may differ from the benchmark indices, the real outperformance often comes from identifying and riding the right themes at the right time. Thematic opportunities typically emerge in a handful of companies poised for a re-rating, either due to the strengthening earnings visibility or because they are operating in the sunrise sectors where the variables are still evolving and are difficult to predict. Such investments tend to be structural in nature and usually reward patient, long-term holding.
To understand thematic investing in a simple way, consider the example of India’s expanding middle class—currently standing at around one-third of the total population and is expected to become half of the total population by 2050. A rising middle-class share implies deepening premiumization across categories, boosting both— the revenue growth and the margin expansion for companies. India’s leading FMCG giants are a textbook example, despite low single-digit volume growth, higher realizations have driven strong revenue momentum. The same trend is visible in the country’s top carmaker, where the average realizations continue to rise as the consumers shift from small cars to the higher-priced models. This premiumization wave triggered a major re-rating in several consumption-sector stocks, making them some of the most expensive names in the Indian market today.
Another theme that emerged post-COVID is the global shift towards the China-plus-one supply chains. This structural realignment accelerated the rise of India’s electronics-manufacturing ecosystem. Several previously low-profile companies tapped the IPO markets, and the sector quickly became a favourite among the institutional investors.
While theme-based investing appears intuitive in theory, the majority of retail investors face three major challenges as compared to the professional asset managers. The first and foremost is the challenge of identifying the right correlation between the macro trends and the thematic triggers— it requires time, data as well as analytical bandwidth, all of which are limited for the individual investors. Over the past decade, sectoral leadership has changed almost every year; no single sector has remained the top performer for two consecutive years. The second challenge is the emotional discipline! It is difficult for a retail investor to maintain an emotional discipline during any market extremes. Retail investors often tend to enter a theme only after the major triggers have already been priced in, leaving very little room for any meaningful long-term alpha. Third and very important, lack of a clear exit framework and understanding of the tax implications of rebalancing, which further compresses overall returns.
Given these complexities, thematic funds managed by professional mutual fund houses are often better suited for such strategies. Asset managers are well equipped to track the fast-changing information flows, interpret macro indicators, and allocate the capital methodically to the sectors aligned with the prevailing economic cycle. For instance, during the 2013 taper-tantrum episode, India was clubbed among the “Fragile Five,” but the fund managers shifted towards the export-oriented sectors—particularly IT—which benefited from a weaker currency and subdued domestic conditions. The AMC-driven thematic strategies evaluate macro variables, identify sectors with favourable tailwinds, and allocate weightings based on sector valuations and the strength of the underlying theme.
“This article is part of the sponsored content programme.”
Published on November 25, 2025