HDFC MF’s Non-Cyclical Consumption Fund stays absolutely true to label, resisting the temptation to include retail consumer focused banks/NBFCs and key discretionary segments like auto and realty (all of which are cyclical) thus delivering a differentiated secular consumption growth focused portfolio, which can act as an effective diversifier in investor portfolios.
In its 18 months existence, the fund has delivered healthy alpha over benchmark and Nifty50, on the back of bets in consumer durables, healthcare, consumer tech and alcobev segments.
This correction has brought valuations back down to historical averages and after multiple rounds of earnings downgrades, earnings estimates are looking quite conservative now, especially on the back of healthy demand revival that we are seeing.
Despite pockets of rural distress as reflected in MFI stress, rural consumption will bounce back in a healthy way as stressed MFI assets (around Rs.50,000 crs) is much lower than annual welfare payouts which stand at Rs.3.5 lakh cr and growing.
Management commentary suggests rural consumption growth is clearly visible as welfare spending coupled with good monsoons are repairing household balance sheets quite rapidly.
Urban middle class tax savings from the Budget will more than offset personal loan and credit card delinquencies which were on the rise, thus fueling urban consumption revival in the coming FY.
With rural consumption growth outpacing urban 2:1, FMCG emerges as a strong bet to ride this rural recovery. Amit is incrementally adding to his FMCG positions in this fund.
Fears on market share erosion for FMCG majors seem to be overblown – Amit says data shows steady market shares for the majors despite advent of many new age smaller competitors. There seems to be a churn within these new age players rather than them taking away share from the majors.
Themes that have been doing well and which Amit believes will continue to grow at a healthy clip include healthcare, travel/tourism and select consumer durables.
One of the less-noticed contributors of India’s K-shaped consumption recovery since covid was labour-intensive export focused sectors including textiles, leather, footwear etc which have stagnated over the last decade. Re-skilling this labour force will be an important contributor to correcting the K shaped recovery, which can give a further fillip to overall consumption growth.