Daily Voice: Great time to create robust consumption-oriented portfolio for long term, says this fund manager

Q2 numbers have been mixed. Yes, there have been some earnings cut but the quarter also had a lagged effect of general elections, over extended monsoons & lack of government spending. The festive demand commentary has been positive specially on the consumer discretionary side. Q3FY25 infact should see revival in earnings growth as rural economy picks up & government spending increases.

Which sectors look attractive after the recent significant correction?

Consumer staples, Consumer durables, Pharma & select large private banks appear attractive in the risk reward framework. Power sector is also benefitting from global tailwinds on power demand. Overall we believe risk reward stack in favour of largecaps versus midcaps & smallcaps.

Do you think the banking and financial services sector will lead the next leg of the market uptrend?

BFSI, is seeing divergent trends. After a long time, good asset quality is not a given. Markets will differentiate between good underwriters & not so good underwriters. We are positive on larger private banks & private insurance players, we also like some of the capital market plays but will wait for valuation comfort to arise before increasing allocation in that space.

Do you see a 50-50 chance of a Fed rate cut in the December policy meeting, following 75 bps cuts in the last two meetings?

There is a reasonable chance of a fed cut coming through in December, however with the change in political regime in the US & possible inflationary policies coming through (higher fiscal deficits & higher import tariffs) a further rate cut will be very data dependent.

Do you expect a strong revival in consumption in the second half of FY25?

We do believe rural consumption to lead the consumption demand revival from hereon. State governments have increased social spending and are giving out reasonable cash dole outs, further a good monsoon & record kharif harvest is ensuring good farm economics. All this should push higher consumption demand and earnings upgrade for consumer focussed businesses.

Will the RBI start a rate cut cycle in the December policy meeting, or will it signal the start of one in the coming year?

Food inflation has surprised on the upside, further there has been some pressure on INR due to US dollar strengthening. This will put RBI in a spot. We believe rate cut, if it were to happen, might happen in February but will be a shallow rate cut cycle for India.

What is your strategy for launching consumption fund? Is it the time to bet on these stocks?

Private consumption is more than 60 percent of India’s GDP. This offers a huge opportunity for investors to create wealth as consumption grows in the country. Within overall consumption basket, there are four mega trends emerging:
1) Consume More (higher frequency of consumption of certain goods & services)
2) Consumer Premium (premiumisation)
3) Consume Better (Focus on wellness)
4) Spend on Convenience

The above-mentioned mega trends are multi-year opportunities offering high growth & profitable prospects to businesses & investors.

Over the last few years markets have focussed on PSUs, Defence & other orderbook driven businesses & ignored the high - quality consumption business, the consumption driven businesses are available at valuations which are discount to their history & also broader market, especially when we look from a context of return ratios, cash generation capability & growth opportunities. This is a great time to create a robust consumption-oriented portfolio for long term.

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