He said quality investing — focused on companies with strong balance sheets, steady earnings, and high return ratios — tends to provide stability during market stress, while momentum strategies help capture stocks benefiting from strong price trends and improving sentiment.
Citing past market behaviour, he pointed to the Nifty 200 Quality 30 index, which outperformed broader markets during the early 2020 correction, while momentum-oriented strategies contributed more during the recovery phase, highlighting how the two approaches tend to perform in different market environments.
According to him, quality acts as the portfolio’s stabilising base, while momentum helps enhance returns by participating in emerging trends. A blended approach, he said, can improve consistency and reduce volatility across market cycles.
Quality seen as relatively stronger in current conditions
In the present environment marked by volatility, sector rotation and stretched valuations in select areas, Das said quality factors are better placed to deliver steadier risk-adjusted returns.
Companies with strong cash flows, pricing power and stable earnings visibility, he noted, are more capable of absorbing macroeconomic uncertainty stemming from inflation trends, liquidity shifts and global developments.
However, he added that momentum remains relevant in pockets of the market. Sectors such as capital goods, defence and select financials have shown strong price trends even when broader indices have moved sideways, indicating that active selection can still generate returns.
He summarised the current approach as a combination of both styles, with quality forming the core and momentum acting as a tactical layer. Pramerica Life Insurance is seeing growing investor interest in such blended strategies, he added.
Risks include reversals and crowded trades
Das cautioned that momentum strategies can experience sharp reversals when market sentiment changes quickly, leading to sudden drawdowns in previously strong-performing stocks.
He also flagged valuation risk, noting that both high-quality and momentum-driven stocks can become expensive during strong rallies, increasing the risk of underperformance later.
Another concern is factor crowding, where too many investors follow similar strategies or own the same stocks, amplifying volatility when flows reverse.
He emphasised that disciplined rebalancing is essential, particularly for momentum exposure, to avoid chasing past performance.
Core-satellite approach suggested for retail investors
For individual investors, Das recommended a structured core-satellite allocation. He suggested keeping 60–70% of the portfolio in quality-oriented investments for long-term stability, while allocating 30–40% to momentum strategies for capturing shorter-term opportunities.
He advised using diversified vehicles such as mutual funds or ULIPs instead of direct stock picking to implement these strategies effectively.
He also noted tax and cost advantages in certain insurance-linked investment products, including deductions under Section 80C in the old tax regime and tax exemptions on maturity under Section 10(10D), subject to regulatory limits. Recent GST adjustments on life insurance premiums, he added, may further reduce costs for policyholders.
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Das said long-term wealth creation depends on combining complementary strategies with discipline, rather than relying on a single outperforming factor at any point in time.
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