HDFC AMC has launched its Non-Cyclical Consumer Fund amidsta cyclical recovery and manufacturing revival. Strong cyclical recovery willdrive household income and therefore consumption. India – at $2000 per capitaincome – is at the cusp of a significant consumption boom as we march towards$5000 by 2031, if we are to go by recent precedents from Asian neighboursincluding China, Indonesia and Vietnam.
Valuations of consumption stocks look high relative tomarket but have been well supported at these levels for over a decade includingthe rough patch when inflation and interest rates were going up. This is duelargely to superior earnings visibility and growth. As consumption accelerates,expect some upside earnings surprises, which can keep valuations wellsupported.
Expect robust growth momentum across many segments ofconsumer discretionary including apparel retail, alcobev, QSR, homeimprovements etc. Consumer durables are also set for strong growth as morecategories become essentials for urban consumers as living standards improve.Some services sectors like healthcare (hospitals/diagnostics) also lookstructurally very well placed.
Initial portfolio likely to be overweight consumerdiscretionary and durables and underweight FMCG and telecom.
This theme excludes the 3 major market sectors – BFSI, ITand auto. Nevertheless, it has over 300 stocks accounting for over 20% of totalmarket cap – which gives ample scope for stock picking. The consumption themehas outperformed the market over 10-15 years on absolute as well as riskadjusted terms. Getting into an election year, this theme is not only arelative hedge against political risk but is also well placed to ride the usualpre-election consumption boom.