ETMarkets Fund Manager Talk: Momentum investing is this IITian-turned smallcase manager’s mantra to outdo benchmarks

The process of momentum investing is like “survival of the fittest”, and it will keep one out of harm’s way so long as the user does not interfere in this natural selection process, said Alok Jain, smallcase manager and founder of Weekend Investing.

Momentum investing does not require market timing, forecasting, predicting or second guessing the market moves, Jain told ETMarkets in an interview.

“So, we continue to play as per our systems and currently, we are fully deployed and there is no cash,” he said.

Edited excerpts:

Tell us about yourself. What inclined you towards equities and what was the turning point?
I graduated from IIT with an engineering degree and pursued a masters in engineering in the US before realizing that unless I pivot into finance, the opportunities were not many for me to return to my homeland, which was my first choice.

Hence, I pursued a masters in finance and a MBA and just then as luck would have it, the National Stock Exchange was opening up and they wanted professionally qualified members, so I got together with some investors and opened up one of North India’s first NSE brokerage house in 1995.

I would say the turning point in my career of 27 years was the chance association with Smallcase that happened in 2018 due to a cold email that I sent to them wanting to partner.

This is how I became Smallcases first manager and a new journey started for them and for me.

Indian equities have recovered sharply from their June lows and hit fresh record highs. Do you see the momentum sustaining or would you call for some caution?
It is extremely difficult to call the market at any point of time. About 80% or more global managers do not beat the benchmarks for this reason. And many of those who do, are at times lucky but are not able to do that on a sustainable basis.

It is with this wisdom that I pushed the nascent concept of ‘momentum investing’ in the Indian marketplace in 2016 that did not require market timing, forecasting, predicting or second guessing the market moves.

So, we continue to play as per our systems and currently, we are fully deployed and there is no cash.

As and when the markets will come down our cash levels will go up, and the portfolio will churn into the relatively stronger stocks on its own. There is no discretion we use in our strategies. Yet, we have performed better than the benchmarks in most periods.


How much AUM do you manage, and how has your fund’s performance been so far in 2022?
We have many products and we offer research on which users run their portfolios. The current size of such funds is about Rs 750 crore across more than 12,000 users. Most of our products continue to beat the underlying benchmarks, and NNF10, our premier product that tracks the Nifty Next 50 large cap index, and Evergreen, which is CNX200-based portfolio, have done wonderfully well capturing several percent points higher than their benchmarks in 2022 so far.

Equity funds have seen sustained flows in 2022 month after month. Do you see a similar trend in 2023 or could one see more money moving to debt funds?

In my personal opinion, India is standing on a very solid ground as of now. Our market stands at 52-week highs whereas most markets are at 52-week lows.

That itself tells you the strength of the India markets as perceived by the intelligence of the global funds.

Despite significant selling by overseas investors, the markets have sustained and there is now a trickle back flow from the same investors given that the dollar is peaking out and risk on trade picks up again

How have you managed the market volatility and enhanced returns for your clients?
We stick to our process because the whole idea is to remove discretion bias and forecasting. As momentum investors, we really do not favour or forecast sector-based picks since the process of momentum investing auto selects the strongest of all sectors, and the periodic rebalance makes sure we stay with the strength in the markets.

Hence, staying with the strongest sectors using price action-based long-term strategies is very essential.

Our processes have shown us over long periods that the process of momentum investing is like survival of the fittest, and it will keep you out of harm’s way as long as the user does not interfere in this natural selection process.

India outperformed global peers in 2022 because of upbeat domestic outlook, and this saw preference tilting towards domestic-linked companies from export-oriented sectors. Do you see this phenomenon staying through in the near term?
In my own personal opinion, India is likely to do very well as our demographics curve is kicking in and we will see an exponential growth in many sectors.

The strategy of the world to diversify away from China will immensely benefit India.

As humans, our brains are wired to think only linearly and we are unable to see the exponential impact that comes through in an economy. Hence, the best way is to have a sound process of what to buy, when to buy, how much to buy and when to sell and let the rest take care of itself.


SIP contributions have increased significantly and retail investors have somewhat shielded Indian markets from the FII sell-off. Do you see the trend continuing?
Retail investors are not shields but they are a new force in the markets which has taken the market share away from FII in terms of them not being able to call the shots in these markets anymore.

The way the equity penetration has grown in the last few years, it bodes well for the current and the last generation to be seeing great value being created out of their risk taking.

I think this decade India will seek deeper and deeper penetration and I will not be surprised to see doubling of this market participation in the next 5-7 years.

What would be your top bets for 2023?
The current themes that our momentum portfolios have been picking are auto, energy, defence and some public sector banks.

These have been the strongest movers over the last 3/6/9 and 12 month periods. I also think with the dollar strength ebbing, commodities and metals will do well in the next year.

As mentioned earlier, we do not pay attention to discretionary forecasts, so regardless of what my personal opinions are, I am 100% confident that our rule-based systems will pick the best sectors that display strength for our clients.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)