Are there challenges to the mutual fund consumption theme?

Consumption theme has been among the many greatest performing mutual fund classes over the previous 12 months regardless of stiff inflation and rising rates of interest. This theme invests in consumption-oriented sectors akin to cars, fast-moving client items (FMCG), client durables and telecom.

On one-year and three-year foundation, the consumption theme has delivered a median return of 13.38% and 21.31%, respectively.

“We are particularly witnessing a powerful rebound in out-of-home consumption. Consequently, segments akin to inns, fast service eating places and journey have finished exceedingly nicely and are touching pre-covid ranges, 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”, mentioned Ankit Jain, senior fund supervisor, Mirae Asset Consumption Fund.

Experts say that consumption theme is predicted to be a secular progress story for India since per capita revenue is slated to extend by 50% by the top of decade to $3,000.

On sub-themes inside the phase, Chawla mentioned, “In the long term, we imagine that consumption is predicted to be pushed by two key themes — enhance of consumption of companies akin to journey and leisure; and premiumization. E-commerce has additionally helped in broad basing and quick monitoring consumption profile for the nation.”

On the opposite hand, Jain is constructive on low-ticket discretionary consumption in city areas and constructing materials sector led by cyclical restoration resulting from actual property upcycle. However, Jain warns that persistent excessive inflation and delay in rural demand restoration might pose problem to this theme.

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