Mirae asset great consumer fund plays the India consumption story while investing in growth oriented B2C businesses

One year has passed since the outbreak of COVID-19 pandemic in India. With COVID vaccination now underway, what is your outlook on consumer demand recovery in the near to medium term?

COVID-19 is an unprecedented situation and caused massive disruption across the value chain in initial few months. Subsequently, recovery has positively surprised as initial assumptions of overall job losses, salary cuts and its impact on overall purchasing power was lower than earlier feared. We continue to remain positive on the consumer sector as we believe sector growth could see an acceleration led by; 1) Continued good rural demand led by government stimulus, good monsoon and higher agri inflation; 2) Pent-up demand and low base effect in discretionary and out-of-home portfolios; 3) Improving liquidity situation; and 4) Positive delta between value and volume on account of inflation unlike earlier years of negative delta. Furthermore, larger companies is expected to keep on growing at a faster pace as a result of consolidation of market share in favour at the cost of fringe players, consumer migration from unorganized players, and further expansion in distribution network. Also structural growth drivers like favourable demographics, low interest rate, rising per capita income, low penetration and premiumization augurs well for medium to long term demand outlook.

What are the risk factors in your outlook on consumer demand recovery?

High inflation and 2^nd wave of COVID can be seen as near term risk factors for overall consumer demand recovery. Most of the companies saw good margin expansion during deflationary cycle of last couple of years. It will be interesting to see margin trajectory going ahead with rising raw material cost (both crude and agri linked) and reversal of savings in discretionary costs acting as headwind. Impact of 2^nd wave of COVID might be contained with current pace of ongoing vaccination drive should help in vaccinating people at high risk by Jun’21.

Which industry sectors, in your view, will see quicker consumption demand revival in the coming months and quarters?

Post COVID, overall demand recovery has been swift and broad based across the sectors. On headline basis, retail sector should see a sharp normalization in earnings because of low base. Companies in sectors like consumer electrical, building material should see a sharp earnings rebound with pent up demand, recovery in housing cycle owing to lower interest rates and market share gain from unorganized players.

Though there are quite a few consumption based thematic funds, many investors and advisors still associate consumption primarily with consumer durables and FMCG. For the benefit of retail investors, please describe the broader ambit of the consumption theme?

Mirae asset great consumer fund plays the India consumption story while investing in growth oriented B2C businesses which can grow higher than country nominal GDP growth rate. Characteristic of this fund is not to confine itself to invest in traditional consumer staple sector; rather we have adopted an approach to invest in diverse set of businesses getting benefitted out of secular growth driven by low penetration and premiumisation. The fund invests across diversified set of sectors like FMCG, auto, consumer durable/discretionary, retail, financials like insurance, AMCs etc and new age e-commerce businesses.

Mirae Asset Great Consumer Fund is close to completing 10 years since launch. Please describe the investment strategy of this fund?

Last 10 year track record for the fund has been satisfactory. Our investment philosophy is to invest in quality growth businesses at a reasonable value through bottom up stock selection. Valuation is an integral aspect of investing and we avoid businesses which don’t fit in our matrix of margin of safety.

The stock market has seen a strong rally from the March 2020 lows. As such, many investors may be worried about valuations. Do you see attractive investment opportunities in the consumption theme at current prices over 3 to 5 year investment horizon?

Overall consumer sector valuations have seen good re-rating in line with overall market performance over last 6-9 months. Presently, consumer discretionary sector valuations are even higher than pre-COVID levels as most of the businesses are building in optionality of faster shift from unorganized segment coupled with increased penetration adding on to accelerated earnings growth over medium term. FMCG sector valuations are still in line with pre-COVID levels. At this juncture, we see broad based opportunity from longer term point of view to invest in good quality businesses with long term growth visibility.

Mirae Asset Great Consumer Fund is one of the top performing consumption thematic funds over the last 10 years with nearly 16% CAGR returns since inception outperforming your benchmark Nifty India Consumption TRI. What aspects of your stock selection / investment strategy do you attribute this performance to?

Last 10 year track record for the fund has been fairly satisfactory (17.15% CAGR against BM performance of 13.15% CAGR) and is a testament of our investment philosophy which is to invest in quality growth businesses at a reasonable price through bottom up stock selection.

Our domestic consumption based economy is strongly linked to India’s growth story. What is your advice to investors who may want to invest in Mirae Asset Great Consumer Fund? What is your minimum recommended investment tenure for this fund?

India consumption theme continues to be a fascinating theme with multi decade opportunity driven by favorable demographic dividend. With India crossing $2000 per capita income, is at an inflection point which should result in significant growth in private final consumption expenditure growth over next decade. During last 10 years, Nifty consumption TRI index has deliver 15% CAGR returns out-performing Large-cap (Nifty 100 TRI) and Mid-cap (Nifty Mid-cap 100 TRI) benchmark returns by 2.7%/1.7% CAGR respectively, that too with lower volatility which clearly signifies relatively steady earnings growth. Structural growth drivers like favourable demographics, low interest rate, rising per capita income, low penetration and premiumization augurs well for this theme to continue to do well.

Mutual fund investments are subject to market risks, read all scheme-related documents carefully.