WF: With the renaming of the fund, you are now open to a wider spectrum of consumption stocks / companies. Has there been a corresponding change in the portfolio strategy and composition?

Krishna: Consumer Trends Fund (which was earlier called the F.O.R.C.E. fund) had a mandatory commitment to invest minimum 15% in Entertainment and 40% in Banks.

Under the new mandate, there is an opportunity to add other consumption-oriented categories such as automobile, healthcare (when we find the space attractive), textile, hospitality etc. In line with this, there is reduced overall weight in Entertainment with corresponding addition in Auto space. Also, the portfolio has increased investment weightages in consumption space.

WF: Consumption sector in India is often considered an evergreen theme. Given the wide array of sectors that fall within its ambit, would the broad consumption theme be more defensive in nature rather than cyclical?

Krishna: Consumption theme in India tends to be more secular in nature than cyclical. India as an economy, is far lower on per capita FMCG consumption Vs similar emerging nations such as Indonesia, Philippines. Organized sector in retail sector is only 9%, similarly financial penetration in retail is just 10%. Hence, there is a good runway for consumption theme in the country.

WF: What are the key sectors within the consumption theme that you are currently overweight in this fund and why?

Krishna: 50% of the country’s population is less than 26 yrs. These youth are still in habit formation stage regarding their buying habits and there is a clear preference for brands emerging amongst them. Also the consumption pie is shifting more towards discretionary spends. They are aspirational in nature and do not hesitate in buying on EMIs. Regulatory measures such as GST are also aiding in shifting trade from the unorganized to the organized players, thereby benefiting larger listed companies. The fund is largely focused on these themes which include discretionary consumption, shift from unorganized to organized and retail lending.

WF: Between rural and urban consumption, which theme are you more optimistic on now and why?

Krishna: Urban consumption has seen rapid increase in last few years. This is panning out in QSR space, grocery retailing and personal loans growth for retail banks. However, on back of last two years of good monsoons and Government focus to revive rural economy, there is expectation that the rural consumption will come back with vigor. Hence, companies are expected to focus on rural growth and would start seeing better growth numbers now.

WF: The fund has outperformed its benchmark / peers over the long haul, the name change has only happened in March, 2018. In what ways might the reorientation of the fund impact its future performance? What are the key challenges that you are likely to face?

Krishna: As stated above, with the name and inclusiveness of new mandate, the fund will benefit from investments in various other categories with lot more flexibility. Hence, the options available for the fund increase. The fund usually invests in companies which will benefit from trends seen in consumption space such as buying preferences from trustworthy branded jewelers instead over local ones, premiumisation trend in detergents space, spurt in branded luggage demand with increasing air travel and many more.

We generally try to spot the changing dynamics in an industry, identify winners early and then stay invested with superior executors to earn compounding returns. The challenge could be high valuations in the space, as a result of which we have to wait for better entry points. This can require patience in volatile markets. However, over medium to long terms, these compounders become wealth creators for investors.

WF: You are ~98.7% invested in stocks, what is your policy on cash calls? In what ways do you plan on protecting the fund in the event of a mean-reverting correction that many believe is due?

Krishna: Investors give us money to invest in market; hence we generally do not take cash calls. Calls on the market reflect in the construction of the portfolio. When there is a sense of volatility in markets, the portfolio construction tilts on the defensive side, whereas in constructive markets, more aggressive bets are sought to benefit from market upswing.

Given its nature and as mentioned above, consumption space sees the least amount of volatility as the themes here are more secular instead of being cyclical. At the same time, consumption is perceived to be a relatively safe space in times of political uncertainty (hence the term ‘politically insulated’) and the theme remains intact irrespective of political outcomes. The fund benefits from that positioning.

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