What does your typical day look like? You wake up, have a cup of coffee or tea. There’s breakfast to have, lunch to prepare, laundry to do, spend the day at work, with a well-earned sleep at the end.
But that’s just the routine! There’s so much more you do in the day – stepping out to a nice lunch with colleagues, browsing through Amazon or Flipkart and filling up that shopping basket or then going out to the mall and doing the same. Swiggy or Zomato come in handy when you’re too tired to get dinner ready. Your commute is made bearable listening to music or podcasts on your phone or the perfect car sound system. Weekends are spent at the movies, at dinner maybe, or lazing at home with your big-screen TV. Or perhaps driving down in your comfortable SUV to a short weekend getaway once in a while!
This is your story. This is the NEW consumption story. Aside from the routine goods we all consume to live and survive, life has now become more about aspirations and experiences. Call it the YOLO effect or upgrading your lifestyle, you are now revving up the New Consumption story in India.
Our newest smallcase portfolio – Prime Trends – Consumption is built precisely on this consumption theme.
Broadly, the following four factors form the basis for our investment thesis:
- Discretionary spending pick-up: The general thesis is that the average income levels of the population has crossed the threshold that takes care of the basics and incremental income will now go towards discretionary consumption.
- State-wise trends indicate an acceleration in spends across the spectrum: Some of the more developed states, which have crossed well beyond the national per-capita average, have become the bedrock of modern retail and discretionary consumption. Meanwhile, currently poorer states can see consumption picking up as they progress in development thanks to improved infrastructure, shift towards manufacturing and higher labour force participation.
- Growing middle-class to spur aspirational spending: A World Economic Forum study says that the number of middle-income households is likely to increase from 21% of population in 2018 to just over 40% of the population by 2030. Easier access to credit and social media, along with e-commerce, have also become enablers of consumption. All point to a healthy growth rate, far higher than nominal growth rate, for companies that can successfully address the growing consumption needs.
- Scope in individual regions: The large size of our economy and the economic output of each geography offers scalable opportunities for businesses. It isn’t necessary for a country-wide presence for companies to scale up; the sheer size of each region offers ample scope even for regional players.
Current market conditions are also lining up for a well-timed entry. There is, of course, the broader market correction that we’re seeing. Even without this, the shine has been rubbed off the consumption story in recent times. The Covid and post-Covid periods have caused fluctuations in the demand (and input costs) environment and this is reflecting in quarterly earnings numbers, and consequently in stock prices. Several higher-priced consumer plays are now available at attractive valuations, providing a good window of investment opportunity. The long-term consumption story, therefore, looks even better now!
So, if your spending is going to charge the economy and the consumption theme, there is a way to also benefit from it!
3 thoughts on “Prime Trends – Consumption: Our newest smallcase portfolio”
Dear Prime Investor Team,
I have a query/doubt to ask you.
1. As you mentioned, this small case focuses primarily on, if not solely on, the discretionary spending part of the consumption theme.
2. However, if we see in the last one year, the stocks linked to discretionary spending have shot up quite a lot as compared to few other more defensive areas in Consumption like say FMCG.
So, the doubt that I have is that will your small case portfolio high Beta and carry lot more volatility and risk than the general consumption theme which is considered as a low-Beta and a defensive bet. So, will this Consumption themed small case still be a defensive bet like how the consumption theme is considered in general?
Thanks in advance! Best wishes to your new small case.
Welcome your query sir,
You are right that the small case primarily focuses on discretionary consumption part.
But on run-up in stocks, it has been mixed in the last 1 Year. Few had a sharp run up while few were left behind.
We are looking at this basket on a longer runway and also on categories where there is opportunity for strong growth. Kindly read our blog for insights into areas we are looking at
https://primeinvestor.in/guide-to-understanding-prime-trends/
You are also right in assuming that the Smallcase portfolio would carry lot more volatility than general consumption theme. You can safely assume that this would not contain FMCG stocks or even if there, not more than 10-15%.
In terms of risks in investing, it mainly comes from 1) valuation and 2) new or emerging businesses
But our focus here is on returns and that too risk adjusted returns in the long run.
Our conscious call is to keep 50% or so of the portfolio in well established businesses in the discretionary consumption space while allocating remaining to promising and emerging business models with allocation to each individual stock based on the business and financial risk that it may carry
We are also looking to play this theme over a longer-term horizon (say for Eg; by the time economy doubles in size) and this gives us enough time to bring down these two risks considerably.
Hope this clarifies
Thank you
Thank you very much Sir, for clarifying my doubt completely in a detailed manner. Really appreciate you for that.
This will help me take an informed decision.