India today has 95 million households with an income of over Rs. 5 lakhs. This is expected to double in the coming 10 years. Ease of credit access has improved very substantially, which will further spur consumption significantly. Confluence of growing income + easy access to credit = huge jump in consumption. Hence the case for a domestic consumption themed fund, like the new HSBC Consumption Fund.
Manufacturing vs consumption: both themes are backed by strong trends, both deserve their space in investors’ portfolios. Where consumption scores is lower volatility, much more predictability as it is driven purely by domestic factors and growth runway which looks strong for at least 10-15 years.
FMCG (37% of benchmark) outlook has brightened with normal monsoons, healthy crop sowing and slowing down of inflationary pressure. Valuations in the sector continue to be above market averages, but that has always been the case given the superior quality of businesses in this space.
Gautam is positive on passenger vehicles and auto components segments of the auto sector (20% of benchmark), not so much on the commercial vehicles segment (which is anyway not consumption themed).
Gautam is positive on realty and textiles (branded domestic consumption focused plays – not B2B export oriented textile companies) and will likely have much larger exposure than benchmark which has only 1-1.5% weights assigned to these sectors. Not very excited right now on media/entertainment sector.