Market interest is coming back into the consumption theme– in part as a rotational play, in part on expectation of Government sops to drive flagging consumption and in part on account of some green shoots now visible in rural consumption.
ABSL GenNext Fund – a consumption focused thematic fund –has allocated a sizeable 20% of portfolio to banks as Chanchal believes retail debt is the key driver for large parts of discretionary consumption.
Underperformance of banks in FY24 has impacted fund performance negatively. Chanchal however is confident that banks will outperform in FY25 and will be one of the tailwinds that can drive his fund back into strong performance zone.
He makes an important point for investors to look more at3 year rolling returns rather than last 1 yr performance, in judging themes and funds worth investing in. He argues that the ABSL GenNext Fund has performed well on a 3 yr rolling return basis in part due to the management of the fund and also in part due to the nature of businesses that populate this theme –strong cash flow generators that are long term compounders.
Discretionary consumption remains a strong theme although one needs to move nimbly within the broad theme across sectors in search of relative value. He continues to believe that alpha is more likely in specific discretionary consumption sectors compared to the broader consumer staples theme.
Chanchal says its time for front view mirror investing (likely performance in next 2 yrs ) rather than rear view mirror investing (recent past performance). The consumption theme is now looking attractive after a considerable time correction, and more so on a relative basis as industrials/infra/capital goods have seen steep run ups and valuations there are looking a bit stretched.