Invest in FMCG funds with medium to long term perspective

FMCG funds have been laggards in the last six months, with an average return of 5.32 per cent against 12.13 per cent offered by CNX Nifty, says Value Research, a mutual fund tracking entity. However, experts are not writing off the consumption theme due to the poor performance of FMCG segment.

They continue to recommend investing in a broad-based consumption theme, which also includes FMCG. The strategy of sticking to a broad theme would help investors to tide over temporary blips, like the one witnessed in FMCG; that is likely to occur from time to time.

“As income rises, the extent of money individuals spend on discretionary items is much more than what he spends on FMCG. This makes it all the more important to invest in consumption ideas beyond FMCG” says Gopal Agrawal, chief investment officer, Mirae Asset Global Investments (India). “Individuals should invest in the consumption theme with a medium to longterm view,” he adds.


For most investors, consumption theme is synonymous with FMCG stocks. But the broad-based consumption theme includes many other businesses. “Consumption theme takes into account all businesses that benefit from an individual’s spending,” explains Mahesh Patil, co-chief investment officer, Birla Sunlife Asset Management Company.

Increased consumer spending has benefitted sectors such as consumer durables, automobiles, jewellery, travelling, entertainment, banks and non-banking finance companies (NBFCs), among others. Experts point out that preference for branded goods and irreversible consumption patterns should work in favour of companies in this space.

Mutual funds too are aware of this. To cash in on the opportunity, they have launched dedicated schemes, which are mandated to own consumption basket stocks. Mahesh Patil says, “Consumption theme is a steady and secular investment theme that offers quality equity exposure to investors with low volatility. This should offer good risk-adjusted returns in the long-term.”

Funds investing in broad consumption theme such as Birla Sunlife India GenNext fund, Birla Sunlife Buy India fund, and UTI India Lifestyle fund have been around for more than five years and have outperformed their benchmarks. These funds invest in sectors such as automobiles, consumer durables, and financials in addition to FMCG.

Mirae Asset India-China Consumption Fund is a relatively new fund with three years of existence and invests in stocks that benefit from consumption growth in India and China. Religare Invesco Mutual Fund has plans to launch Invesco Asia Consumer Demand Fund that invests in consumption theme stocks in Asia excluding Japan.

When the sentiment is positive, many investors prefer to own cyclical sectors such as financials and automobiles, which benefit from rising consumption. And investors prefer FMCG stocks as adefensive bet in bad times. A fund manager can align his portfolio from time to time and generate better risk adjusted returns. “These consumption focused funds have broader investment universe than the FMCG funds,” says Vidya Bala, head of mutual fund research, fundsindia.com, a mutual fund distribution entity.

“Though this space is relatively less volatile, there will be periods of underperformance, such as the last one year,” says Bala. She advises restricting investment in these funds to the extent of 10% of the equity portfolio.