The past few weeks saw a clear trend in sectoral and thematic indices. The specific thematic or sectoral index rose for up to 8 days in a row. This trend was seen in several indices.
This clearly indicated that the interest of the broader market was squarely focused on chasing momentum. Everybody wants to participate where momentum is strong. Interestingly, nobody seems to be interested in the indices. Instead, they are obsessed with individual stocks. Here a secondary trend emerges. Traders are rotating focus among stocks within each theme. So, stocks within each theme are rising one after another.
Each thematic index keeps rising as momentum spreads within the index. This is also a decent indicator that market participants are chasing momentum in droves. By extension, we may call this herd mentality. But we don’t know if the market has gone too far in this behaviour.
We could see more momentum chasing some themes. Policy actions and Governmental moves may further fuel momentum in some themes. Meanwhile, other themes may not have much fuel left. This momentum will not be secular across the broader market. At best, it can be localised and sequential.
This is the perfect setting for holdings to move from HNI to retail and from PE’s/PMS’s to MF schemes. Watch, monitor, and act on these moves. It is critical that investors gradually move to safety.
The warnings may sound a bit premature. But, the signals must not be ignored. If you are investing by yourself, you should respect that you are on your own and the forces against you are too big.