The consumer theme has been one of the best performing mutual fund categories over the past year despite high inflation and rising interest rates. This theme invests in consumer-oriented sectors such as automotive, fast moving consumer goods (FMCG), consumer durables and telecommunications.
On a one-year and three-year basis, the consumer theme delivered an average return of 13.38% and 21.31%, respectively.
“In particular, we are seeing a strong rebound in out-of-home consumption. Consequently, segments such as hotels, quick service restaurants and travel have performed extremely well and are touching pre-covid levels, operationally,” said Sanjay Chawla, CIO-equity, Baroda BNP Paribas Mutual fund.
However, segments such as commodities and autos have come under pressure on input prices, but experts say the worst of the margin pressures have passed. In addition, a sharp decline in commodity prices improved the sector’s earnings outlook due to strong pricing power.
The data shows that the top 20 companies in industries such as FMCG, Retail, Consumer Durables and Building Materials generated an 11% CAGR of earnings between Q1FY20 and Q1FY23 despite weak consumer sentiment.
“A good monsoon combined with moderate inflation could contribute to the recovery of rural demand and better visibility of income growth. Against this backdrop, we continue to see decent earnings momentum and a risk-reward balance for the sector,” said Ankit Jain, Principal Fund Manager, Mirae Asset Consumption Fund.
Experts say the consumption theme should be a secular growth story for India as per capita income is expected to rise 50% by the end of the decade to $3,000.
On segment sub-themes, Chawla said, “Long term, we believe consumption should be driven by two key themes – rising consumption of services such as travel and leisure; and premiumization. E-commerce has also helped broaden and accelerate the country’s consumption profile. »
On the other hand, Jain is positive on low-cost consumer discretionary in urban areas and the construction materials sector, driven by the cyclical recovery due to the real estate upcycle. However, Jain warns that continued high inflation and delayed rural demand recovery could pose a challenge to this theme.
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