Momentum investing has long intrigued both institutional and individual investors. The idea is simple: stocks that have performed well recently tend to keep doing well in the short run.

But can this strategy really hold up over the long term, especially in a dynamic and evolving market like India? With the growing popularity of momentum-based funds and strategies, it's worth exploring whether they consistently generate alpha. In this article, we’ll examine whether momentum investing can work in India and its limitations.

Can Momentum Investing Work for India in the Long Run?

Several research findings show that momentum strategies, which consistently lean toward assets that have performed well recently, have managed to generate strong long-term excess returns across a range of markets and asset classes.

In India, systematic momentum strategies built on NIFTY100 data have delivered roughly 10.7% annual excess returns with strong risk adjusted performance, though they come with elevated volatility and occasional crashes.

Momentum investing can deliver long term alpha in India, but how well it works depends a lot on structure, consistency, and spreading risk.

1. Market Sentiment vs Long-Term Results

Although short-term performance in 2025 was weaker due to macroeconomic uncertainty, momentum and alpha strategies have still generated strong overall returns across the last ten years.

Many analysts believe that poor results in volatile periods should not take away from momentum’s long-standing track record of delivering consistent gains over time.

2. Indexed Momentum and Systematic Exposure

Passive implementations such as index funds mimicking momentum indices like the Nifty 200 Momentum 30 or Nifty Midcap 150 Momentum 50 offer a rules-based, low-bias route to tap momentum effectively.

These funds have often outperformed their parent indices over the long term, although they can suffer during sharp market downturns.

The combination of transparency, low manager bias, and tax efficiency via index investing can be particularly helpful for long-term investors.

3. Competitive Edge via Theme Funds

Some fund houses like Mirae Asset Mutual Funds have launched products that track momentum plus quality indices.

For instance, the Mirae Asset Nifty Smallcap 250 Momentum Quality 100 ETF Fund of Fund is structured to capture returns from small-cap companies that score high on both quality and momentum factors.

These funds aim to layer additional stability atop momentum signals by ensuring exposure to fundamentally stronger names.

Limitations and Risks of Momentum Strategies

Momentum strategies can deliver strong returns at times, but they also come with real risks that investors should think through before putting in their money.

●     Prone to sharp pullbacks and sudden losses: These strategies can face quick and severe declines, often called momentum crashes. Such drops usually happen during market corrections and may wipe out prior gains in a short span.

●        High sensitivity to market noise and false trends: These strategies rely heavily on recent price movements, making them prone to reacting to short-lived fluctuations rather than meaningful trends. This increases volatility in execution.

●        Elevated trading costs and turnover: Running momentum funds typically involves frequent portfolio adjustments. This leads to higher transaction costs and tax implications, which can significantly reduce long-term returns.

●        Crowding risk in popular trades: When too many investors adopt similar momentum strategies, trades become crowded. This amplifies risk, as market reversals can trigger swift and broad exits.

Conclusion

Momentum strategies can generate long-term alpha in Indian markets if used with care, consistency, and solid risk controls. Though the potential for returns is attractive, the swings can be intense. Combining momentum with other styles and staying flexible through different market phases may help investors stay the course and improve long-term results.