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    Savvy investors pick stocks that will benefit from revival in consumption

    Synopsis

    Consumption funds have the flexibility to move across sectors when valuations turn expensive or cheap unlike specific sector funds.

    ET Bureau
    MUMBAI: As Dalal Street enters Samvat 2071, well-informed investors are cherry-picking stock winners that would benefit from the likely revival in consumption over the next few years. Retail investors, confused about which stocks to pick, may consider mutual fund schemes that bet on shares of companies likely to benefit from the consumption theme.

    Among domestic mutual funds, Mirae, Birla Sun Life, Reliance and UTI operate schemes that focus specifically on consumption. Average returns of these four schemes (see table) in the past three years were 22 per cent against the 16 per cent gains of the benchmark Nifty, according to data from Value Research.

    “The consumption theme should play out in India given the young demographic profile of the country. Over the last four years, the rural consumption theme has played out well and now urban consumption is catching up,” said Sunil Singhania, chief investment officer — equity, Reliance Capital Asset Management.

    The consumption theme includes companies in the FMCG, automobiles, housing, paints, consumer durables and cement sectors. For most investors, consumption means fast-moving consumer goods (FMCG). However, with changes in lifestyle, the theme has become broad-based. “The process to move up the value chain by opting for branded goods over non-branded ones has become faster. This consumption is a structural story, which will unfold over the long term and can offer compounding returns,” says Gopal Agrawal, chief investment officer, Mirae Asset Global Investments (India).

    Consumption funds have the flexibility to move across sectors when valuations turn expensive or cheap unlike specific sector funds.

    “Consumption is a large canvass — from white goods and kitchen appliances to companies that fund their purchase. Automobiles, entertainment, and paints, too, have attracted more consumers as income levels rise,” says Kunj Bansal, CIO, Centrum India. With rising income levels, consumers prefer to pay extra for premium services. Multiplexes, branded jewellery and vacation services are benefiting from this.

    Pankaj Pandey, head of research, ICICIdirect.com says, “Discretionary consumption has shown pockets of high growth in recent years and they can continue to report high growth, offering good investment opportunities in the long term.”

    A look at the mutual fund schemes in this space makes it clear that the portfolios are aligned to benefit from a surge in consumption. For most of these schemes, financial services are a preferred bet and have ith the highest allocation. Banks and NBFCs finance retail consumption and benefit as consumption goes up.

    Automobiles and services, too, are preferred by some fund managers. Though each one is focused on consumption, these schemes are not identical to each other. Though the idea of investing in these schemes may be alluring, investors need to have a long-term view. Pandey says, “Valuations of consumption-led stocks are not cheap any more, if you look at nearterm earnings. One must have a long-term view to benefit from long-term growth.”

    Mirae’s Agrawal says, “Though the story is structural, do not expect structural bull run in the stock prices. There will be phases when you will see consolidation before the next up move begins.”

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    The Economic Times

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