EVERYONE LOVES A big story such as EVs, AI, India’s consumption boom. But spotting the right sector, getting in early, and exiting smartly? That’s tricky. Thematic investing sounds exciting, but for most retail investors, it’s easier said than done.
Thematic investing is not new, but it’s not fully understood either. A theme is more than a single sector. It’s a larger story. Think of it like a web of companies tied to one idea, like consumption, digitalisation, or energy transformation. The idea is to ride the wave early and exit before it turns flat.
At the right place, at the right time
Most retail investors struggle to connect macro events with sector returns. For example, which theme benefits when inflation drops or when the rupee weakens? Not everyone has the time or tools to answer that. And even if they do, making the right call at the right time is hard. That’s one reason thematic investing trips up so many people.
There’s also emotion. Greed rises when themes run hot. Fear captures minds when things cool down. In 1999, tech stocks went wild. The Nifty IT index rose nearly 740 per cent in one year (Feb-1999 to Feb-2000). Then came the dot-com crash. It dropped 64.9 per cent over the next year (Mar-2000 to Mar-2001). People bought at the peak, hoping for more. Most wouldn’t have been able to exit in time.
On the flip side, some themes work silently. In 2013, most were worried about India’s fiscal deficit and falling rupee. But during that macro chaos, export-focused themes like pharma and IT quietly did well. Many investors missed this opportunity.
Another classic case is pharma sector in 2014. Funds in this category grew their assets by 69 per cent in one year ended Jun-2015. Then the Nifty Pharma index gave -12.07 per cent CAGR returns over the next three years. That’s a painful experience if one stayed on too long.
Themes can turn, and they can turn fast. Knowing when to get out matters as much as knowing when to get in. But tax rules can make exits trickier. This adds a whole new layer of stress for regular investors.
Why bet on themes
Because when themes work, the payoff can be big. But timing matters. Selection is key. And most of us cannot monitor every theme every month. Sector winners change every year. In 2014, banking was on top. In 2015, pharma. In 2016, it was commodities. By 2025, who knows? One thing is for sure: there’s no single sector that stays best for long.
So how should you approach this constant churn? Start by recognising that you’re betting on an idea, not just a sector. This idea may be driven by policy, demographics, global shifts or innovation. Think of renewable energy. Or financial inclusion. Or housing. These are not narrow bets. They are trends that unfold over years. But they do not always move in a straight line.
Mixing aggressive and defensive themes is another smart move. The idea is to avoid overexposure to just one type of market condition.
One more thing: sometimes it’s okay to stay invested across themes even if individual sectors underperform. A basket of thematic exposures can potentially return better than most standalone indices. This is because some themes will rise while others won’t, and smart rebalancing will help smoothen the ride.
To be fair, thematic investing is not for everyone. It needs patience and some risk appetite. But if you’re willing to play the long game and let experts do the theme-picking and rebalancing, it might just work in your favour.
No theme wins all the time. But the right themes, chosen early, can do the heavy lifting in your portfolio. Thematic investing is complex for retail investors. Hence, it is advisable to use the thematic mutual fund route and gain from expert selection, diversification, tax efficiency, as well as timely rebalancing advantages.
A notable example is the ICICI Prudential Thematic Advantage Fund (FOF), a fund of funds scheme designed to capture growth opportunities across diverse sectors and investment themes. Its investment strategy hinges on identifying emerging trends by analysing macroeconomic developments and sectors/themes valuation. As of July 30, 2025, this fund of funds posted a one-year return of 8.23 per cent, with robust CAGR returns of 20.68 per cent over three years.