Are there challenges to the mutual fund consumption theme?
Premium- According to experts, consumption theme is expected to be a secular growth story for India
Consumption theme has been among the best performing mutual fund categories over the past year despite stiff inflation and rising interest rates. This theme invests in consumption-oriented sectors such as automobiles, fast-moving consumer goods (FMCG), consumer durables and telecom.
On one-year and three-year basis, the consumption theme has delivered an average return of 13.38% and 21.31%, respectively.
“We are specifically witnessing a strong rebound in out-of-home consumption. Consequently, segments such as hotels, quick service restaurants and travel have done exceedingly well and are touching pre-covid levels, operationally", said Sanjay Chawla, CIO-equity, Baroda BNP Paribas Mutual Fund.
However, segments such as staples and automobiles have seen input price pressure, but experts believe that the worst of margin pressures is over. Also, a sharp decline in commodity prices has improved sector earnings outlook on account of strong pricing power.
Data show that top 20 companies across sectors like FMCG, retail, consumer durables and building materials have delivered 11% earnings CAGR between Q1FY20 and Q1FY23 despite weak consumer sentiments.
“Good monsoon coupled with moderating inflation might help in rural demand recovery and better revenue growth visibility. In that backdrop, we continue to see decent earnings momentum and balance risk-reward for the sector", said Ankit Jain, senior fund manager, Mirae Asset Consumption Fund.
Experts say that consumption theme is expected to be a secular growth story for India since per capita income is slated to increase by 50% by the end of decade to $3,000.
On sub-themes within the segment, Chawla said, “In the long run, we believe that consumption is expected to be driven by two key themes — increase of consumption of services such as travel and leisure; and premiumization. E-commerce has also helped in broad basing and fast tracking consumption profile for the country."
On the other hand, Jain is positive on low-ticket discretionary consumption in urban areas and building material sector led by cyclical recovery due to real estate upcycle. However, Jain warns that persistent high inflation and delay in rural demand recovery may pose challenge to this theme.
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