IMAGINE YOU’RE planning a long vacation. Instead of choosing one fixed place, you decide to go on a road trip across India. You pick your stops based on the season: hill stations in summer, beaches during the monsoon, deserts in winter. Your route isn’t random; it’s guided by the changing weather and the kind of experiences you seek. This, in a way, is how thematic investing works—i.e. choosing your investment path based on prevailing trends, much like picking destinations based on climate.
At its core, thematic investing is about identifying big-picture ideas or opportunities, such as a growing demand for healthcare, the rise of digital payments, or the shift to renewable energy, and putting your money into businesses likely to benefit from these shifts. Instead of focusing on just one sector like banking or technology, thematic investing often bundles related sectors that are expected to ride the same wave. Think of it like selecting colleges based on a field of interest like engineering, for instance, where the institutions may vary, but the underlying theme is constant.
Why Themes Change, and Why Timing is Tricky
Just like fashion trends or holiday destinations, investment themes aren’t evergreen. They come and go, often influenced by economic conditions, government policies, or global events. For example, in some years, banks might thrive due to falling interest rates and rising credit demand. In others, technology firms may remain in the spotlight as innovation accelerates. Over the last decade, no single sector has been a consistent winner. In 2014, bank stocks surged, while in 2015 it was pharma. Then in 2016, commodities led the pack. In 2020, pharma stocks were the stars, thanks to the pandemic. But the crown keeps shifting. What works wonders one year might underperform the next. Most investors find it hard to track the ever-shifting alignment between sector performance and broader economic cues like interest rates, inflation, or global demand.
Emotional Rollercoaster: Greed, Fear, and Missed Buses
Human emotions often interfere with rational decisions. During market highs, the fear of missing out can lead people to invest in a theme that’s already peaked. In the dot-com boom of 1999–2000, tech stocks soared over 700 per cent in a single year—only to crash spectacularly when reality hit. Those who rushed in late saw massive losses.
The opposite is also true. In uncertain times, even promising themes get overlooked. Back in 2013, India was facing an economic slowdown. Amid the fear, many missed the rising export-oriented sectors like IT and pharma that later delivered strong returns. Hence, thematic strategies require patience and perspective.
The Case for Diversification and Rebalancing
Since no single theme stays on top forever, thematic investing needs careful planning. Imagine you had to bet all your vacation days on visiting just one place every year. One year it’s perfect; the next, a cyclone hits. Similarly, putting all your money in one theme can leave you exposed when that trend slows down.
A more effective approach is to diversify across multiple themes by combining cyclical sectors like banking and infrastructure with defensive ones like healthcare and consumer goods. This helps cushion the impact when one theme underperforms. Regular rebalancing, i.e. adjusting how much you invest in each theme based on its performance and future outlook is crucial. Tax implications, timing decisions, and emotional hesitation often get in the way of this.
Follow the Idea, Not the Crowd
Thematic investing is like travelling with a map that highlights opportunity zones but it’s still up to you to choose the route wisely. It’s not about chasing the latest trend or timing the market perfectly. It’s about understanding which ideas are shaping the future and positioning your investments accordingly across multiple themes, with room for adjustments.
For everyday investors, this approach offers a chance to align their portfolios with real-world changes they can relate to and this can be achieved by investing in thematic mutual funds. One such fund is the ICICI Prudential Thematic Advantage Fund (FOF). This fund is a Fund of Funds Scheme that aims to invest in Emerging Opportunities across sectors and themes. As of May 30, 2025, the fund delivered a solid one-year return of 20.85%, with CAGR returns of 21.38% over three years and an impressive 28.74% over five years.
The writer is CEO, CRK Financial Services