.jpg)
Festive season makes many of us loosen their purse strings. This is the time we see many corporations advertise heavily and e-commerce companies as well as offline retailers announcing ‘Sale’ to promote goods and services. This year we have the central government adding more colours to our celebrations by reducing the burden of indirect taxes – goods and services tax, and in turn making goods and services more accessible. Low inflation, low interest rates, cheaper goods and services due to lower GST and more money in the hands of the households because of lower income tax burden offer a strong tail wind to the consumption bandwagon and offer investment opportunities for medium to long term investors.
What’s Driving India’s Growing Consumption Story?
Before getting into how to benefit from the Indian consumption theme, let us understand some of the key drivers.
How Are Income and Demographics Powering Demand?
We all know about the demographic dividend and the rising per capita income in India. Young population with rising income, if offered, cheap credit can consume a wide range of goods and services given their high aspirations. After three years of investment driven growth in the Indian economy, the government has decided to shift to consumption driven growth. Corporate investments – capital expenditure can take off if there is buoyancy in demand for goods and services. In the backdrop of worsening trade wars and increasing geo-political tensions the export demand growth is muted. Hence there is a need to boost local consumption.
How Are Budget Changes and Rate Cuts Helping?
The government decided to reduce the direct tax burden by reducing the income tax rates and increasing the zero tax limit to Rs 12 lakh for FY2026, in the Union Budget 2025. This has given more money in the hands of the individuals. Also, the Reserve Bank of India has already cut the policy rates by 100 basis points since February 2025. One more rate cut cannot be ruled out before March 2026. This means relatively cheaper loans. This may act as a nudge for many to go for loans for consumption purposes. The GST reduction further makes goods and services cheaper.
Why the Consumption Cycle Is Gaining Momentum
Put together, Indian consumption gets a renewed boost at the right time. Festive season sales can be big, no doubt. It also gives a big boost to the consumption habits of Indians and many corporations may have to set up new capacities to cater to this domestic consumption demand. These new capacities should in turn create jobs and income; leading to more consumption demand – a virtuous cycle setting in. Given low penetration levels in most consumption segments, there is a long growth pathway for consumer companies as Indian consumers explore the goods and services on offer and demand more of them.
What Challenges Do Consumption Businesses Face?
This sustainable growth approach must be capitalised by tapping right investment opportunities. However, it is easier said than done. The consumption patterns are changing with rising urbanisation, preference for brands & premium products and changing consumption habits. As consumers look for more alternatives, competition creeps in denting margins and volumes of some of the established brands. The distribution channels are also changing and the digital eco-system has brought in many disruptive changes. An average investor may find it difficult to pick stocks and hence mutual funds should be given money to do the heavy lifting.
How Do Consumption Funds Fit Into the Picture?
Consumption theme is further sub-divided into segments such as fast-moving consumer goods, non-cyclical consumption, discretionary consumption and modern tech-driven consumption among others. Mutual funds hence have launched some sector and theme funds that cater to specific investment needs. However, most investors would be better off investing in actively managed consumption theme funds. These schemes invest minimum 80% of the scheme’s money in consumption theme stocks. This theme is spread across sectors such as auto, financials, healthcare, fast moving consumer goods, telecom, hotels, quick service restaurants, housing, new-age consumer tech, consumer durables, and processed agricultural goods. This allows the fund manager to build a diversified equity portfolio and in turn reduces risk associated with a thematic or sectoral offering The fund manager can modify the portfolio depending on his views on various businesses at regular intervals. This should help these schemes generate healthy risk-adjusted returns over the medium to long term.
How Much Should You Invest in Consumption Funds?
Investors should consider staggered investments in these consumption funds up to 10% of their equity portfolio. Ideally, investments should be carried out using a combination of lump sum and systematic investment plans. Actively managed schemes from Nippon Life, Axis and Mirae Asset should be considered with a minimum time frame of five years.
Disclaimer: This report is prepared in his personal capacity and neither the Author nor Money Honey Financial Services Pvt Ltd assumes any responsibility or liability for any error or omission in the content of the article. Investments in mutual funds and other risky assets are subject to market risks. Please seek advice from an investment professional before investing.