Tailwinds have emerged for consumption with the recently announced GST reforms being another positive factor. The consumer will be armed with lower EMIs, higher post-tax income, lower inflation, lower cost of goods post the GST reforms alongside higher credit availability. The headwinds in export economy and the domestic focus on internal consumption, backed by a large elbow room in the fiscal space, make the consumption play all the more important for investors.
The sector though is showing initial signs of a fragile recovery in the last six months. We analyse the mutual funds tracking the sector and their performance for an appropriate fund to ride the ‘consumption recovery’.
Tailwinds
The reasons to expect a revival in consumption are aplenty. Inflation and credit availability are supportive of the segment. Inflation has eased significantly and is at its lowest in the last six years. While this may inhibit price-based growth, companies can benefit from either lower cost of production or expanding volumes and hence gain from operational leverage. Credit availability is robust with rate cuts of 100 bps in the last one year; concerns over credit demand moderation remain, however. The lower cost of borrowing should spur high-ticket consumption growth.
The general outlook is also pointing towards a recovery considering the weak base. Last year’s headwinds in rural economy have eased and are inching towards growth. But the urban segment is now under pressure which should be alleviated by tax and interest rate cuts announced in the last one year. The country is also expecting an above average monsoon, which should support a recovery in consumption.
In the macro sphere, the ambitious fiscal deficit targeting of the last few budgets is now being put to use. The healthy 4.8 per cent fiscal deficit for FY25 is now proving to be a wide enough elbow room for the government to spur consumption through taxation cuts. The income tax cuts have started to flow through to the salaried class. In the indirect route, the Centre is looking to rationalise GST structure by eliminating 28 per cent slab and moderating it to 5 or 18 per cent and a 40 per cent slab for sin goods. From insurance to automobiles, lower tax will be reaped by consumers entirely, further aiding the consumption sector.
Sector performance
Across varied industries under the consumption umbrella, the focus is on the upcoming festival season or the second half of the fiscal. In automobiles, retail, or FMCG, the bottom-line has not delivered stellar growth so far despite the tailwinds.
In terms of revenue/PAT growth in Q1FY26, automobiles slowed to 4.6/2.1 per cent year-on-year in the recent quarter. A high comparable base can be attributed for the modest growth, as PVs had driven strong growth in the last three years. FMCG reported 11 per cent year-on-year revenue growth but PAT growth slowed to 3.2 per cent in the quarter. The segment is investing in advertising, promotion and other expenses as competition for market share has intensified in the lean period along with shifting supply lines. Sunrise sectors of e-commerce have reported a 44 per cent year-on-year growth in Q1FY26.
Construction material segments of cement and steel have reported stellar quarter with 72 and 64 per cent year-on-year PAT growth. While the cost of commodity has improved (cement and steel) the operational leverage, lower cost of production and power, that has a higher renewables share, has aided the sector.
Fund options
Consumption sector outperformed Nifty-50 in the last decade. Nifty India Consumption index returned an average 14.7 per cent average 5-year CAGR in last 10 years on a rolling return basis compared to Nifty-50’s 13.1 per cent. The impact of Covid years was higher on the consumption sector but the bounce back was also sharper as evidenced by the outperformance.
While the index is outperforming, the funds tracking the sector (actively) have outperformed the sector index as well. Aditya Birla Consumption Fund has returned a daily average 5-year CAGR of 17 per cent compared to index’s 14.7 per cent. Similarly, Mirae Asset Great Consumer Fund and Canara Robeco Consumer Trend have returned 16.8 and 16.7 per cent respectively in the last decade.
It has to be noted that the funds improve their chances of beating the index only over longer time frames. We also measured the proportion of days the funds beat the index over the 10-year period on a rolling return basis. Overall, from the funds with more than five years of operations, the percentage of beating the index improves from 48 per cent in one year rolling return basis to 54 per cent in three year windows and to 67 per cent in five year windows. That is, a fund beats the index 67 per cent of the days in the past decade as measured on a 5-year return window.
Retailing, consumer durables, automobiles and banks are the leading sector exposures. Aditya Birla fund is well diversified (top 10 account for 36.7 per cent in July-25) compared to Mirae (49.8 per cent) and Canara (42.2 per cent). Telecom, with Bharti Airtel, is a leading constituent for the three with a visible outlook on ARPU gains and volume gains to compliment. A leading constituent is Eternal (Zomato) with its strong growth run. Despite rural recovery, the three funds are not overweight on rural specific exposure led by Bajaj Auto, Hero or TVS.
Published on August 23, 2025
