Investor Preference for Sectoral/Thematic Funds: What to Expect in 2024
Investors are increasingly leaning towards sectoral/thematic funds, targeting specific sectors like PSU companies. As we enter 2024, the focus is on banking, capital goods, and infrastructure funds. Discover the potential of these funds and what to expect in the coming year.
Heightened Investor Preference for Sectoral/Thematic Funds
Investors are showing a growing interest in sectoral/thematic funds, which focus on specific sectors such as PSU companies. These funds have gained popularity due to their potential for attractive returns and the ability to outperform the market. The assets under management (AUM) of sectoral/thematic funds have surged by 30% between October 2022 and October 2023, reaching ₹2.18 lakh crore.
During market upswings, investors tend to lean towards thematic investing, aiming to capitalize on the performance of specific themes or sectors. This trend is driven by the desire to go down the risk curve after a period of strong market performance. Sectoral/thematic funds offer investors the opportunity to make active calls on sectors or themes they believe will perform well.
Promising Sectors for 2024: Banking, Capital Goods, and Infrastructure
As we step into 2024, certain sectors are expected to perform well in the Indian market. Banking, capital goods, and infrastructure funds are likely to be the frontrunners. These sectors have the potential for growth and are expected to outperform other sectors.
Banking Sector:
The banking sector is expected to do well in 2024. With the economic recovery gaining momentum and increased lending activities, banking stocks are likely to see positive growth. Investors can consider allocating a portion of their portfolio to banking sector funds to take advantage of this trend.
Capital Goods Sector:
The capital goods sector, which includes companies involved in the production of machinery and equipment, is poised for growth in 2024. As the economy expands and infrastructure projects gain traction, the demand for capital goods is expected to rise. Investing in capital goods funds can provide exposure to this sector and potentially generate attractive returns.
Infrastructure Sector:
The infrastructure sector is expected to continue its growth trajectory in 2024. The government’s focus on infrastructure development, including initiatives like the National Infrastructure Pipeline, will drive investments in this sector. Infrastructure funds offer investors the opportunity to participate in the growth potential of infrastructure companies.
Considerations for Investors
Investors should be aware that sectoral/thematic funds come with their own set of risks and benefits. These funds are more focused and concentrated compared to diversified equity funds. Therefore, they are suitable for investors who have a strong conviction about specific sectors or themes.
It is important for investors to carefully evaluate their investment choices and consider their risk tolerance. When adding thematic funds to their portfolio, investors should be mindful of the higher level of risk associated with these funds, especially during periods of extended market upswings.
While sectoral/thematic funds can offer the potential for higher returns, they also carry the risk of underperformance if the chosen sector or theme does not perform as expected. Investors are advised to consult with a financial advisor and diversify their investments to manage risk effectively.