The last big tax cut that FMCG companies saw was when GST was implemented in 2017 – taxes went down from 24-28% to 12-18% and some even as low as 5%. That gave a tremendous fillip to volume growth over the next 2 years. This round of GST cuts promises another spurt of volume growth for FMCG and other mass consumption companies.
Benign food inflation, real wages ticking up after a longtime, encouraging crop cycle, interest rate cuts and a series of Central and State Government fiscal and welfare measures have all lined up to put more disposable income in the pockets of consumers.
An analysis of 20 years data of correlations between Government grants and consumption growth shows a very strong correlation for mass consumption items rather than discretionary consumption items. Delta in terms of growth from the current set of stimulus measures will therefore likely be seen more in mass consumption items.
Management commentaries indicate that urban mass consumption is finally turning around – which is a very encouraging sign – especially in the context of market’s earnings growth estimates that have remained conservative.
HDFC Non-Cyclical Consumption Fund is tilted more towards mass consumption rather than discretionary con, for these reasons, as also the fact that mass consumption stocks have been laggards in the market while discretionary consumption stocks have done quite well.
Within discretionary consumption, he is overweight value retailers, travel/tourism and healthcare and quick commerce platforms