Sector and Thematic Investing Is Too Blunt an Instrument

Investors are given plenty of ways to express a view on a sector or a theme. The difficulty is that these categories are wide enough to contain both the companies driving value creation and the ones being left behind by it.

We began by making the case for greater granularity. Within any sector at any point in the cycle, value creation tends to be concentrated in specific sub-parts of it — pockets defined by a particular shift in economics, competitive position or capital allocation, rather than by industry classification. These are what we call microtrends, and identifying them is a materially different exercise from picking sectors.

What a Microtrend Actually Looks Like

The distinction is easiest to see through an example, so we worked through Financial Services in India.

Structural reform and India's demographic dividend are macro-trends supporting the sector. BFSI as a whole is the sector; Banking, NBFCs, Capital Markets and Insurance are the industries within it. Microtrends sit a level deeper still — asset quality normalisation among corporate banks, value migration towards financial franchises, the financialisation of household savings. Each is a specific, identifiable driver of value creation with its own timeline and its own set of beneficiaries. A broad BFSI allocation captures all of these diluted together, alongside a good deal that is not participating at all.

Microtrends Are Dynamic, Not Permanent

An important part of the session dealt with the fact that microtrends change. Every market cycle has a different set of underlying shifts driving the greatest value creation, shaped by the prevailing economic and market conditions. A framework built on this has to be willing to move as those conditions do.

We walked through the microtrends currently represented in the portfolio and the reasoning behind each — asset quality normalisation, the financialisation of savings, digital disruption, consumer aspiration, capex revival, and leading lending franchises — along with historical case studies across capital goods, FMCG, healthcare and private banks that show how these cycles have played out previously.

Concentration Without Moving Down the Quality Curve

We closed on portfolio construction, and on a trade-off investors are rarely offered a good answer to.

Concentration usually means accepting smaller, lower-quality companies to get differentiated exposure. Concentrating by microtrend rather than by stock changes that calculation — identifying a small number of high-conviction microtrends allows the portfolio to be built from larger, higher-quality businesses while still holding genuinely differentiated positions. IME Concentrated Microtrends applies this through a twin-engine philosophy that identifies the microtrend and the companies best placed within it separately, holding 20–30 positions across 4–8 microtrends in a flexi-cap portfolio with a large and midcap bias.