Summary
The latest blog from Sacha Chorley explores the parallels between fashion trends and financial market cycles, highlighting how both undergo periodic changes in popularity and perception over time.
Markets and Fashion
Anyone that knows me will know that I’m not exactly a fashionista. Indeed, my colleagues in the office will often comment on my garish choice of socks. So, it is perhaps interesting that a fashion related story piqued my interest. A recent Times article* referenced a study which found that clothing styles tended to increase in similarity across 20 year cycles. This makes intuitive sense: what feels fresh, exciting and irresistible one year can look tired, or even embarrassing a few years later.
The article made me reflect on how similar financial markets are in this respect. Think of the boom‑and‑bust cycles that crop up throughout market history, or the periodic enthusiasm for particular market segments or clever‑sounding structures. At the time, these ideas often feel like innovations that are timeless and structural, but often we look back on these more like last season’s trends: exciting on the runway but less relevant in real life.
The Hot Ticket
Over the last decade or so, one of the most popular items in investors’ ‘wardrobes’ was Indian equity. It seemed to tick all the right boxes. The macroeconomic backdrop was supportive, with growth prospects encouraged by the election of reformist Prime Minister Modi. India also boasts a large, well‑educated, English‑speaking workforce, which made it particularly attractive to global companies and investors alike.
From a market’s perspective, many of the listed companies were viewed as high quality. A few years ago, Indian IT services firms were seen as great investments: asset-light business models with high operating margins servicing a vast global addressable market. Similarly, Indian banks and mortgage providers were among the most attractive emerging market financials. They were able to generate strong returns into a growing and maturing market full of new mortgage and banking customers.
In both cases they were, in market terms, the equivalent of a well‑cut blazer: dependable and flattering in most environments. Unsurprisingly, this popularity drove prices higher and valuations became expensive, reflecting the perceived quality of these businesses.
This Season’s Cold Shoulder
Fast‑forward to today and the mood around Indian equity looks very different. As the backdrop has changed so has the narrative. India is a net importer of oil, so the situation in the Middle East and higher energy prices, act as a drag on the economy rather than a tailwind. The banking sector generally has struggled, in light of the higher rate environment and higher prevailing levels of leverage in the household and corporate sectors, leading to fears of negative credit trends.
At the same time, some of those former ‘darling’ tech companies are facing new challenges. The rapid development of AI has raised uncomfortable questions for the relevance of these companies. Tasks that once required large teams of engineers may, over time, be done faster and more cheaply using AI‑driven tools. That doesn’t mean these businesses are obsolete, but it does mean their future growth may look different from their past.
Put together, these factors have cooled enthusiasm. India is no longer the obvious overweight it once was, and we see this in large underweights to India across emerging market investors. In fashion terms, it has been moved to the back of the wardrobe, replaced by newer, shinier ideas.
Fashion is not forever
Here’s where it can pay to try and consider the long‑term opportunities. Just because something is out of fashion today doesn’t mean it lacks long‑run appeal. Plenty of enduring styles go through periods of neglect before being rediscovered.
India still has many of the structural advantages that made it appealing in the first place: its demographic benefits haven’t disappeared, and its entrepreneurial culture remains strong. Technology is indeed changing the nature of work, but this also creates new opportunities for companies that adapt rather than resist.
For professional investors, these moments can be particularly interesting. When the crowd is looking elsewhere, expectations tend to be lower and valuations more forgiving. That doesn’t guarantee success, but it can increase the asymmetry of gain (if it works) versus the loss (if it doesn’t).
Make it timeless
None of this is an argument for blindly backing unfashionable markets or ignoring risks. The Indian equity story has more factors to consider than just those described here: trade and tariff policy, taxation changes, high real interest rates. All of these factors may mean the bull case isn’t sufficiently strong to warrant an overweight at today’s prices.
The point is though, that the opportunity can be to keep an open mind when others are too busy chasing the latest look. In markets, as in fashion: styles rotate, narratives change, and what feels passé today can look prescient tomorrow, although maybe my socks should be left in the wardrobe.
Key takeaways
- Markets move in cycles, not straight lines. Just as fashion trends rotate, investment narratives come in and out of favour. What feels structural and timeless at the peak can later look cyclical, reminding investors to stay alert to changing market conditions.
- India’s recent loss of favour reflects shifting headwinds, not a broken story. Higher energy prices, tighter financial conditions and new technology challenges have cooled enthusiasm for Indian equities, particularly banks and IT services, leading many investors to reduce exposure.
- Unfashionable markets can offer long‑term opportunity. When sentiment turns negative, expectations and valuations often fall. For patient investors willing to look beyond the current narrative, this can improve the balance between potential upside and downside risk.
Sacha Chorley
Portfolio ManagerSacha is a portfolio manager of the Quilter Investors Cirilium and Creation Portfolios. Prior to joining Quilter Investors in 2011, Sacha worked at Broadstone with their team of economists before moving into asset allocation and fund manager research.
Sacha is a CFA charterholder and has also completed the Chartered Alternative Investment Analyst qualification. Sacha has a degree in Maths from the University of Bath.
