Modi 2.0 was focused on a massive infrastructure buildout – a capex focused economic policy. Modi 3.0’s economic policy in sharp contrast is very consumer led – focused on enhancing disposable income to boost consumption.
Fiscal and monetary policies have driven income tax cuts, GST cuts, interest rate cuts while state governments are ramping up welfare spending. All of these account for over Rs.4.3 lakh crores of money now in the pockets of different consumer segments.
Another Rs.4.5 lakh crores is set to come into the pockets of government employees with the implementation of 8th Pay Commission recommendations. That puts the annual delta into consumer pockets at a whopping Rs. 8.8 lakh crores.
Benign inflation, uptick finally in real wage growth and good rabi and kharif crops are all coming together to benefit consumers at the lower end – where consumption growth had stagnated.
Private capex has not taken off as promoters have been waiting for signs of sustainable demand growth. With that issue now getting tackled, expect capacity utilizations to rapidly increase, resulting in the much awaited private capex growth as businesses finally begin expanding capacities to serve growing demand.
Sceptics who are wary of consumer stocks due to the recent run up are probably missing the big picture of the magnitude of incremental demand that is likely to be generated under the influence of Modi 3.0’s policy measures.
Chanchal reminds us of the early days of the infra and industrials sector booms post covid. Sceptics were wary after the initial 20-30% run up – they missed the big picture of Modi 2.0. Don’t now miss the big picture of Modi 3.0 and stay away from the consumption theme.
He likes convenience retailers, value apparel, autos and white goods within consumer discretionary – all of which he believes have long growth waves ahead of them.
Reacting to concerns on FMCG stocks, Chanchal differentiates between personal care products – where growth may remain tepid vs food (including packaged food, processed food) and beverages (including soft drinks, juices and alcohol based drinks) – all of which have sizeable growth runways ahead of them.
ABSL MF’s Consumption Fund has seen its performance improve from 3rd quartile to 2nd quartile in the last year and could well be headed for better times as its sizeable bets on banks (over 20% of portfolio) finally begin paying off after underperforming over the last couple of years. Chanchal says banks are the key financiers of discretionary consumption growth and therefore should find place in any consumption themed fund.