Meet the champions of momentum investing who beat competition in bull market

Arihant Bardia, founder and CIO of Valtrust, and (right) Deepak Shenoy, founder and CEO of Capitalmind.
Arihant Bardia, founder and CIO of Valtrust, and (right) Deepak Shenoy, founder and CEO of Capitalmind.


  • While momentum falls behind the broad indices in bear markets, the bull outperformance more than makes up for this over the long term

In 2019, India’s stock market was largely in the doldrums. A few ‘quality’ stocks drove returns while most stocks, especially mid- and small-caps lagged.

In this environment, Deepak Shenoy, founder and CEO of Capitalmind, launched a momentum strategy in his portfolio management service (PMS). In May 2020, he published a whitepaper showing that even the simplest momentum strategies had beaten the broader market since 2000.

Momentum investing broadly involves buying the fastest-rising stocks in the hope they will continue to rise, countering the traditional ‘buy low, sell high’ maxim that governs the minds of most stock pickers.

Understanding momentum investing
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Understanding momentum investing

Shenoy's strategy gained traction. In March 2020, the covid-19 pandemic hit the world and India’s stock market crashed. From this crash, a new bull market emerged, the likes of which India had never seen before. And momentum investing took off. From May 2020 to May 2021, Shenoy’s momentum portfolio was up 99%.

India’s mutual fund industry was watching closely. In May 2021, UTI Mutual Fund launched India’s first passive momentum fund, the UTI 200 Momentum 30 Index, tracking the Nifty 200 Momentum 30 Index.

The bet proved highly successful. The fund rose 40% till Dec 2021, beating the 19.25% delivered by the Nifty 500 handsomely. This was followed by Motilal Oswal launching its own strategy on the same index in Feb 2022.

Arihant Bardia, a mutual fund distributor based in Chennai also spotted the potential of this strategy. He hired Shenoy’s head of research Prashant Krishna and launched his own PMS, called Valtrust in Jan 2023.

“We rely on price alone, not volume or fundamentals. We pick the top 30 stocks from among the 750 largest which show a steady rise. In the next month rebalance, if a stock drops below 30th rank but remains within the top 60, we let it continue. If it falls below the 60th rank, we replace it with the top ranked stock," said Bardia.

"In exceptional circumstances, we do continue to hold stocks below the 60th rank if it meets certain additional parameters. But we will always add stocks only from the Top 30," said Bardia.

Valturst is up 91% in the past year (as of 30 April 2024), shows data from the Association of Portfolio Managers of India (APMI). UTI Nifty 200 Momentum 30’s assets have swelled to 5,496 crore (as of 30 April 2024). It has beaten the Nifty 500 by a huge margin in three out of the past four years.

Will the party last?

Pratik Oswal of Motilal Oswal doesn’t seem to think so. A presentation recently delivered by Oswal at an online event organised by the AMC showed how different factors do better in different markets. ‘Quality’ and ‘low volume’ in bear markets, value in recoveries and momentum in bull markets.

Oswal favours a ‘multi-factor’ strategy rather than one relying on just momentum. However, there’s another way to think about this. Oswal’s presentation shows the Nifty 200 Momentum 30 beating the Nifty 50 by a huge margin over the last 15 years (in a backtest). The Nifty delivered 14.7%, while the momentum index delivered 22.8%.

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While momentum falls behind the broad indices in bear markets, the bull outperformance more than makes up for this over the long term - this is Shenoy’s thinking on the subject.

But why does momentum work at all? Surely it should be arbitraged away when market players see it working year after year? This is already happening with more AMCs entering the fray with their momentum funds such as Bandhan, Tata and Edelweiss.

However, Oswal thinks there’s a long way to go before the strategy can be ended by overcrowding. The current volume of money following such strategies is relatively small. Wealth managers have also begun dipping their feet.

Vaibhav Porwal, co-founder of Dezerv, a wealth management firm structured as portfolio management service (PMS) says they allocate 15-20% of client portfolios to momentum strategies (based on risk appetite).

For Bardia, as a wealth manager (multi-family office), just 6-7% of his assets under management (AUM) is in momentum. However, momentum doesn’t generally form the core portfolio of most mainstream firms.

How you should approach this strategy

Momentum does well in bull markets but crashes in bear markets. It has proved a hero in India’s post-2020 bull market but it is unlikely that this bull market will last forever.

If you dislike volatility, stay away. If you can stomach some volatility, use SIPs to average out your risk and keep the allocation to momentum at a relatively small level.

Over a multi-year period, backtests show momentum outperforming, but you must have the stomach to endure sharp falls and periods of underperformance.

This strategy also involves heavy churn (a lot of buying and selling stocks) and can make tax filing complicated. Investing through a mutual fund can be more efficient—you only pay tax when you redeem the fund and not when it trades in stocks.

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