Why this fund is a good option for investors wanting to play the consumption theme

In the four years since Covid, the Indian economy has been powered mainly by government spending on capital projects and infrastructure, while the consumption leg of the economy has been straggling. This has led to sectors such as capital goods and infrastructure leading the stock market rally. This makes it a good time for investors to enter the consumption theme, which is endemic to India’s long-term growth story.  

There seem to be three compelling arguments for investing in consumption-themed funds at this juncture.  

With growth in the agriculture leg of the economy dwindling off from over 4 per cent in FY21 to 1.4 per cent in FY24, incomes and consumption in rural India have been lagging urban India in the last four years. This trend is likely to reverse this year with the expectation of an above-normal monsoon, which will lift agricultural output and spark a rural consumption revival.  

The Central government is likely to pivot from doubling down on capex spending to shoring up the rural economy and welfare spending, after seeing its majority whittled down in the recent elections.  

Recent macro data from the household consumption survey and national accounts shows shifts in the consumption patterns of Indians, from food to non-food spending, from goods to services and from essentials to experiences. This is giving rise to many niche investing opportunities in consumption, which are just making a debut in the listed universe and have a long growth runway.   

The Mirae Asset Great Consumer Fund is a good option for investors wishing to play this theme.  

As a fund house, Mirae Asset has built a reputation for delivering a very consistent show from a quality at a reasonable price approach, which fits well into the consumption theme. Mirae Asset Great Consumer Fund owns a concentrated portfolio of 30-40 stocks from across themes such as FMCG, automobiles, realty, healthcare, e commerce, media, telecom, finance, tourism and so on. It screens stocks mainly for quality and Return on Equity without overpaying for these metrics. Originally launched as Mirae India China Consumption Fund in 2011, the fund pivoted to Mirae Asset Great Consumer Fund in March 2016, with a focus on benefitting from consumption-led demand in India.   

Why buy  

Performance: On a rolling one-year basis since March 2016, Mirae Great Consumer Fund has beaten the broad market benchmark - Nifty500 over 82 per cent of the time. The fund has clocked maximum one-year returns of over 80 per cent while averaging 19.4 per cent over all the rolling one-year periods. This average compares well to peers such as Nippon India Consumption and Aditya Birla GenNext Fund, which play the same theme. With its worst one-year loss of 25 per cent though, the fund has fared worse than peers (20-21 per cent loss) in adverse markets. The fund has managed a one-year gain of over 20 per cent about 42 per cent of the time, a higher proportion than peers. 

Portfolio composition: A key constraint of consumption-themed funds is their tendency to lean towards conventional consumption plays such as FMCG and automobiles. But the Mirae fund’s portfolio is well-diversified across categories spanning both goods and services. Consumer services such as telecom (6.8 per cent of assets), retail (15.2 per cent), healthcare (4.5 per cent) have significant representation in the portfolio, with picks such as Bharti Airtel, Trent, Zomato, Avenue Supermarts and HDFC Bank finding place right alongside ITC, HUL, Maruti, Eicher etc.    

Downside protection: Consumption stocks have traditionally offered better downside protection during market falls given the strong cash flows and ROE metrics of many consumption stocks. In the case of this fund, this attribute is strengthened by its strong large-cap tilt. As of May 2024, over 64 per cent of Mirae Asset Great Consumer Fund’s portfolio was invested in large-caps with an 18 per cent allocation reach to mid-caps and small-caps.  

Risks  

Consumption stocks usually trade at a stiff premium to the market and this reflects in Mirae Asset Great Consumer Fund’s portfolio PE of 42 times in May 2024. Like all thematic funds, this one may need investors to adopt an active strategy towards entry and exit to capture cycles. The expense ratio on the regular plan is a rather high 1.88 per cent, but that on the direct plan is a more reasonable 0.44 per cent.