Everybody has been waiting for this consumption fund, I can tell you. Now that the consumption fund finally is out from Edelweiss, I think the wait is over. Would you agree with me?
Radhika Gupta: Correct. And I do not think when we had launched the fund, our CIO was telling me consumption is going to be the dark horse of the year. After Saturday’s announcement, we were all in office. He came out of his cabin and he said, I think it is not going to be the dark horse, it is the horse this year.
I thought you planned it after a budget and you launched it. What timing?
Radhika Gupta: We planned it before budget. It opened the day before budget. The NFO opened the day before budget and then the day of budget we said, well, what brilliant timing.
The next time I need to know what is coming in budget, I should be calling you.
Radhika Gupta: Correct. By the way, we got this right last year also. We did tech in March when it was down in the dumps and like tech was the sector of 2024. So, you should call us.
Why should one invest in this one because it is believed that consumption stocks are expensive. There may be this great India romance. But if you are buying companies at 50, 60, 70 PE multiples, which is what consumption stocks are, you will not make money.
Radhika Gupta: So, I will give you a quick two-liner on it. One is, I believe that if the India story has to play out, consumption is going to be a large part of that story. If per capita income is going to go from two-and-a-half thousand to five thousand to eventually we are talking Viksit Bharat, 15,000 to 20,000, 60% is going to come from consumption spend. You see the trajectory of any major economy, you see how the US was shaped in the 60s, 80s, and 2020, consumption followed that pattern. So, it is a wide sector and India is a consumption driven economy.
Now the point, consumption stocks that are expensive. If you look at India in aggregate, India’s PE multiple over 10 years as a stock market is higher than its 10-year averages. So, India is re-rated upward.
But within that basket, consumption stocks have fallen 20%, 30%, 40%. And in an environment like 2025 where you are seeing earnings disappointments, most of the pain in consumption is in the price.
We are not saying things are going to turn around this quarter. In fact, we are saying that you might have one or two more quarters of bad earnings, but you are getting close to the bottom of the earning cycle in consumption.
And third, which was not planned when the fund was launched, is you have a catalyst in the form of everything that has come in the budget.
Consumption starts with FMCG, it can go to as high as luxury cars. What will be the underlying theme of this fund?
Radhika Gupta: There is a myth that consumption is these very boring FMCG companies and staples. And we want to argue that consumption actually is very dynamic. I mean, if you look at America’s consumption basket, the number one item is actually media and the number three item is biotech. So, as people’s income changes, what we spend on changes, I mean, could you imagine that Kumbh tickets would be 80,000 a night and people would pay one lakh for hotel rooms to go see Coldplay? So, I think that is core consumption. We divide it this way.
There is core consumption, which is your traditional staples, etc. It will be a part of the portfolio. But there are also two other categories. Category two is what you call emerging consumption.
So, for instance, food delivery is emerging consumption, beauty and personal care is emerging forms of consumption, travel is emerging forms of consumption, anything that is experiential and I believe more listed companies are going to come up in this category.
So, over the last few years, you have had a lot of listed companies, platforms, D2C brands, etc, come up in this. And third is there are cyclical things in consumption. So, consumption is not static. You have points of the economy, for instance, where two-wheeler demand does very well. You have points in the economy where hotel demand does really well. So, core emerging and cyclical and we are going to try and blend all three.
Last year, you had this big theme on manufacturing, where a lot of them actually went ahead and invested in that theme, most of the hopes riding on the budget actually, the capex theme. And when they got into this, it was actually a high-risk sector. There was a potential of high growth. But now if someone is looking at the consumption space and looking at the consumption space given the fact the way how the budget also has panned out, what should they be watching out for very carefully?
Radhika Gupta: So, the way I think about it is this and put aside this consumption, we manage large, regular funds where we have the choice to move between sectors, I think one is when you are investing in any kind of theme, you should try and do it at the bottom of the cycle.
So, typically themes come out at the top of the cycle because past performance looks very good and that was the case with manufacturing and defence last year. Themes should be done at the bottom of the cycle.
Now in our own funds, we were very overweight manufacturing last year candidly. Over the last year, we have been cutting down our weight on manufacturing and capital goods oriented sectors, again, well before the budget and adding three sectors, technology, banks, lenders, and consumption.
So, when you look at themes, you have to look at things that are bottom of the cycle. You have to look at margin of safety in the event that there are earnings downgrades.
So, we just got your outlook on the consumption fund that you have just launched. But other than that, help us with the understanding on the SIPs as well, since we have you with us, I wanted to get a sense that since the markets have become a little wobbly of late, what we are seeing is the heightened volatility, where do you see the SIP trend going ahead? Though it has been growing one way upwards, but there has been a little bit of slowdown in terms of the incremental growth. In the recent past, has there been any change that we have witnessed in the SIP inflows or rather some shift that has been there in terms of the allocation?
Radhika Gupta: It is too early to tell. I mean, if you look at the tide, it started turning in October from a market point of view and narrative point of view. If you look at the monthly equity flows into industry, they have broadly been the same. In fact, I think the industry probably has got more than 40,000 crores of equity flows.
Certainly, our numbers were the same in January as they were in October, November. Look, there are two parts to it. SIP long term will continue to be structural. I mean, I argue that India will have a one lakh crore SIP book as we come to the end of the decade. Now, could you see 5% to 10% froth in this number? Yes. Are you seeing that froth yet or that froth coming off? It is a little too early to tell. One thing that is interesting is the one-year return on SIP is now more flat. Investors are maturing.
They are becoming a lot more long term. But as I said, it is too early to tell. One thing that you are seeing is that maybe large NFOs that used to happen, they are getting a little smaller, so that is the first sign of impact, if any, that you are seeing.
There is this whole narrative in the market smallcap is Humpty Dumpty, largecap is slim, trim and thin. Shift out of smallcap, go to largecap. At a portfolio level and at AMC level, do you see this coming? While net numbers are impressive, but is it coming at the cost of smallcap, smallcap funds, midcap, midcap funds?
Radhika Gupta: No, I do not like the narrative. I do not understand the narrative and I think there are reasons that some people propagate the narrative. But there are a few things I would say here. One is that if you look at even this earnings season, what has disappointed on earnings is actually large and smallcap, midcap earnings growth and that index, by the way, has been trading at the highest speed till the correction.
Midcap earnings growth has actually fared better. So, these smallcaps and midcaps have to trade at a discount to largecap, etc. I am not sure I buy that.
The other thing that I always say is that remember, India has a very unique way to classify mid and smallcaps. Your smallcaps are now 11,000 crore companies, your midcaps are now 30,000-40,000 crore companies because we have a rank-based definition.
And I always tell investors do not do this jumping from smallcap hat to largecap hat, be more flexi-cap and multi-cap in nature because if you want broad based representation of the Indian economy, you have to hold 250 companies, you are not going to get it from 50 to 100 companies.
I do not think I have seen a cut in small and midcap numbers. We run a large midcap fund and a large smallcap fund. In fact, in January, you saw an acceleration in numbers that came into midcap. So, I do not even think we have seen that cut yet.
Let us say if somebody has a three-year review and they are now suddenly feeling and I am talking about the Gen Z’s, the post COVID investors, 30%, 20% drawdown in their mutual fund and they said, what should we do? Papa ne bola equity mein paisa mat dalo, humne nahi suna.
Radhika Gupta: By the way, mujhe lagta hai Gen Z investors ghabrate nahi hai. For them, even doing smallcap mutual fund is not aggressive. But I met more and more Gen Z investors who are borrowing to do F&O and doing crazy stuff in the SME IPO world. So, I do not think mutual fund is very-very aggressive for them. But my learning to anyone who is a new investor is, look, a correction is a feature of equity investing. It is not a bug that has happened in equity.
So, ride on, just use this time to reflect on what your actual risk appetite is, because nobody learns their risk appetite in an upmarket, you learn your risk appetite in a downmarket.
So, do not do anything. Do not get panicked by seeing the red and use this time to reflect, that is it. And I think Gen Z has a lot of risk appetite.
We underestimate the risk appetite of this generation. People in India who were born after 2000 are born into an India of abundance, of startup India, they have a lot of risk appetite.
What else could be a theme after the market selloff where you think there is additional alpha, like fund managers say alpha, I like that word always, it is a Greek word alpha, alpha can be generated in someone’s portfolio.
Radhika Gupta: So, in financials, the winds are changing. And even though I come from capital markets, over the last few years lenders, especially banks have been a little bit of the underdogs and a lot of flow has gone into capital market oriented companies, exchanges, brokers, etc.
If you see the winds of the market change, I think banks, private sector banks, lenders would be the underdogs. So, we have been adding to that in the fund. So, now they are looked at as a value play, the fact is quality of balance sheet continues to be very good and you have a potential red cut coming your way. So, lenders is the next big one.
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