Is momentum only about price? ICICI Prudential wants to redefine momentum investing
ADVERTISEMENT Fund Manager Manasvi Shah argues that sustainable momentum stems from strengthening earnings trajectories rather than temporary price surges. This earnings-driven strategy aims to capture intrinsic value drivers while avoiding sentiment-based pitfalls.
By leveraging strong research capabilities to distinguish between sustainable earnings momentum and fleeting market excitement, ICICI Prudential positions this fund as an "all-weather equity strategy" that can work across market cycles—potentially establishing a new paradigm in India's mutual fund landscape.
Since the strategy focuses on capturing momentum in company or sector earnings, it is designed as an all-weather equity strategy. Historically, across market cycles, certain companies and sectors with stronger earnings trends tend to outperform the broader market. An earnings-revision-based approach, like ICICI Prudential Active Momentum, is inherently cycle-agnostic.
Momentum investing, particularly with an earnings focus, is still relatively nascent in the Indian mutual fund space but has significant potential to evolve into a major category over the coming years.
While momentum is often driven by sentiment or speculation, our fund avoids non-fundamental triggers. The core focus is on earnings momentum, because ultimately, earnings drive intrinsic value—and, consequently, stock prices.
ADVERTISEMENT Because the strategy centers on earnings momentum, it avoids the influence of non-fundamental factors like temporary sentiment shifts or market noise. Generally, earnings trends are more sustainable than price movements. Our in-house research helps us differentiate between genuine earnings momentum and fleeting spikes, allowing for more informed stock selection.We follow a blend of bottom-up and top-down approaches. Momentum shifts across sectors and companies over time. Even in sectors where broader momentum is weak, some companies may be executing well and showing strong earnings trends. We aim for diversification across sectors and market capitalizations. While sectoral skews may occur, high concentration is unlikely.
ADVERTISEMENT Any macro or micro trigger that could impact earnings trajectories is a critical consideration. Since this is an actively managed fund, without fixed rebalancing cycles, we maintain the flexibility to respond swiftly to such events when they influence momentum.
The fund is capitalization-agnostic—we will invest wherever we find strong earnings momentum, whether in large, mid, or small caps, subject to maintaining portfolio liquidity. That's why our benchmark is the Nifty 500, rather than Nifty 50 or Nifty Midcap 150.
ADVERTISEMENT This is a cycle-agnostic strategy that focuses on earnings revisions, which historically work across cycles. While pure momentum may falter during short-term volatility, earnings-based momentum tends to be stickier, making the approach more reliable.
There's no fixed rebalancing schedule—we act as needed. While price-only momentum funds tend to churn more due to volatility, focusing on earnings provides greater stability and helps control turnover and costs.
Price-based momentum is more vulnerable in corrections. But earnings-focused strategies often hold up better, as companies with strong earnings trends tend to decline less. If earnings momentum weakens across the board, the fund has the flexibility to raise cash within defined limits. This combination of stock selection and cash allocation is key to managing downside and generating long-term alpha.
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The Hindu
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- The Hindu
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