In our NFO Pick section, we have till now discussed the nuances of the NFOs of HDFC Defence Fund, Quant BFSI Funds, Edelweiss Multi-Asset Allocation Fund and Mirae Asset Multi-Cap Fund in previous issues. In this issue, we dwell upon the NFO of HDFC Non-Cyclical Consumer Fund, which has just opened for subscription on June 23, 2023. The fund will invest across large caps, mid-caps, and small caps; but its underlying theme will be to invest in non-cyclical consumer stocks in the Indian equity market. It will be a thematic equity funds, which is by default, higher on the risk and potential return scale.
Story of India consumption and key drivers
One of the big stories that most analysts do talk about is the India consumption theme. For an economy that is poised to become a $5 trillion economy in the next 6-7 years and with a rapidly growing middle class, consumption appears to be the low-hanging fruit. However, the HDFC Non-Cyclical Consumer Fund makes a more nuanced classification by focusing on non-cyclical consumption themes. Why does the India consumption story looks attractive?
Key features of the HDFC Non-Cyclical Consumer Fund NFO
The HDFC Non-Cyclical Consumer Fund NFO will invest the corpus across large caps, mid-caps, and small caps, while maintaining over 80-85% exposure to equities. While the theme will be non-cyclical consumption, the fund will be agnostic towards market cap. It will have the flexibility to distribute the corpus across large caps, mid-caps, and small caps.
Thematic funds can generate alpha if a long term approach is combined with entering the sector at an inflection point.
How has consumption performed versus Nifty?
How has consumption theme in India performed over different periods of time as compared to the Nifty; both on returns and on risk.
Holding Period |
Nifty-50 TRI Returns |
Consumption TRI Returns |
Nifty-50 TRI Risk (STDEV) |
Consumption Risk (STDEV) |
Nifty-50 TRI Risk/Reward |
Consumption Risk/Reward |
1 Year |
14.6% |
14.9% |
23.5% |
17.7% |
0.62X |
0.84X |
3 Years |
11.4% |
13.3% |
6.1% |
6.2% |
1.89X |
2.16X |
5 Years |
11.2% |
13.7% |
4.2% |
4.2% |
2.69X |
3.24X |
10 Years |
11.3% |
14.2% |
2.4% |
1.8% |
4.65X |
8.09X |
Data Source: HDFC Mutual Fund Brochure
As can be seen from the above table, consumption themed funds as an asset class have done well over longer time frames. If you look at a 3 year time frame, the average CAGR returns given by these consumption funds in India is 13.3%, which is better than the 11.4% given by the Nifty. However, as you longer timeframes of 5 years and 10 years, the outperformance of the Consumption theme over the Nifty is much more pronounced.
But returns are just one side of the story; and risk is the other side. We use standard deviation as a proxy for risk and then calculate the ratio of rewards to risk. If you look at a 3 year period, the ratio of rewards to risk is 1.89 for the Nifty and 2.16 for the consumption funds. However, as you go longer into 5 years and 10 year time frames, the outperformance of the consumption theme in risk-adjusted return terms also keeps growing.
Glance at the HDFC Non-Cyclical Consumer Fund NFO
Here are some details of the HDFC Non-Cyclical Consumer Fund NFO you must know to decide on investing in the fund.
The HDFC Non-Cyclical Consumer Fund NFO is an opportunity to benefit from a very India-specific theme like non-cyclical consumption.
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