consumption stocks: Fund Manager Talk | Mirae’s Siddhant Chhabria raising allocation in discretionary consumption stocks

“We have been overweight consumer discretionary and underweight staples as the discretionary sector can grow at 1.5-2x GDP growth while staples have the potential to grow at ~1x GDP. Both sectors are trading at similar valuation, hence we prefer discretionary given the growth opportunity,” says the fund manager of Mirae Asset Great Consumer Fund.

The Rs 4,100 crore fund has given a CAGR of nearly 19% in the last 5 years.

Edited excerpts from a chat with Chhabria on how Budget can reshape investment trajectory:

How strong do you think the impact of Rs 1 lakh crore boost to consumption from income tax relief?
Urban demand was under stress over the last 18-24 months owing to inflationary headwinds impacting household spending. With the income tax relief, the major beneficiaries are households with income of Rs12-50 lakh, who see effective tax rate reducing by 2-5% (implying Rs 1 lakh p.a. of savings). This can stimulate positive consumer sentiments and boost discretionary demand going ahead. There is also scope for RBI to cut rates which will trigger a mean reversion in spending patterns.

Do you think discretionary would benefit more than staples?
This is expected to benefit middle class consumption which will be directed towards higher discretionary spends (non-food). Non-food categories (~65% share of Urban household consumption) could see a large extent of the benefit as incremental income will be spent on upgrading lifestyle (like eating out, autos, home improvement, travel, fashion etc).

When you leave more money in the hands of young Indians, it will have a multiplier effect and the list of winners would go well beyond FMCG and consumer durables to auto, QSR, travel and tourism and even capital markets. Which other sectors do you think stand to gain as a result?
Higher household disposable incomes would drive consumption, increase household savings pools in some cases and some may choose to reduce debt.

Apart from income tax cuts, potential rate cuts and moderation in inflation (led by food deflation) will drive an uptick in discretionary spends which were deferred by households during the last 1 year.

How do you think it may impact banks and NBFCs in terms of both household debt, consumer financing and easing pressure on deposits?
Higher disposable income will leave consumers with more money to spend on consumption which should help consumer credit growth. A portion of this will also be allocated as savings which should aid overall net household savings over the medium term. Further, more money in the hands of consumers will give banks more deposits and lead to a better multiplier effect in the economy.

Do you think it will also drive premiumization for the middle class with higher spending on jewellery, hotels, travel, food delivery platforms, etc?
K-shaped consumption pattern has been the key trend over the last 3-4 years, wherein premium products have outperformed mass consumption. We believe while there could be a mean reversion in mass consumption, premium demand can continue to do well. Hence, divergence in spending patterns can moderate.

Do you think the impact of the tax relief would be seen as soon as Q1 earnings of FY26 or it will take 2-3 quarters for it to play out?
It is difficult to predict the exact timelines but ideally should play out over the course of FY26.

What is the current portfolio construction of the fund and whether you are tweaking it after the Budget?
We have been overweight consumer discretionary and underweight staples as the discretionary sector can grow at 1.5-2x GDP growth while staples have the potential to grow at ~1x GDP. Both sectors are trading at similar valuation, hence we prefer discretionary given the growth opportunity. Post the recent announcement, we are incrementally looking to further increase our allocation in the discretionary sector.