Reasons for the decline
The sharp rise in crude oil prices has increased costs for consumption companies. “High oil prices have raised transportation and packaging expenses, compressing the profit margins of consumer-centric companies,” says Abhishek Kumar, Sebi-registered investment advisor and founder, SahajMoney.com. Input costs could rise further, adding to the margin pressure these companies already face.
Ongoing geopolitical tensions have disrupted supply chains. “They have made sourcing more expensive. Companies that earlier depended on Gulf suppliers are now forced to import from alternative markets at higher costs, adding to the pressure on profitability,” says Feroze Azeez, joint chief executive officer (CEO), Anand Rathi Wealth.
Demand-side pressures are also weighing on the sector. The prolonged disruption in oil and gas supply has heightened concerns over second-order effects on consumption. “Inflation fears have reduced discretionary spending and affected profitability,” says Harsh Vira, chief financial planner and founder, FinPro Wealth.
Valuations in the consumption sector have been elevated over the past few years due to strong brand franchises and predictable earnings. “The underperformance is a function of valuation excesses colliding with macro headwinds,” says Prashasta Seth, CEO, Prudent Investment Managers.
Seth adds that rural demand has remained uneven, and urban consumption, while resilient, has not been strong enough to justify premium multiples.
The war in West Asia and its impact on oil and gas prices have hurt overall market sentiment. “The recent decline has been driven by a global risk-off mood triggered by geopolitical tensions,” says Deviprasad Nair, head of businesses, Helios India.
Factors that could support a comeback
These funds could recover if oil prices stabilise and the geopolitical situation improves, easing cost pressures on companies.
“Stabilisation of raw material prices and normalisation of supply chains can help margins expand again,” says Kumar. Stable inflation could help revive consumption.
Moreover, India’s structural growth story remains intact. “It stems from rising incomes, a young population, and policy support such as tax relief and (GST) rate cuts,” says Azeez.
“Formalisation of the economy, premiumisation across categories, digital penetration, and younger generations’ willingness to experiment are other long-term positives for the sector,” says Nair.
Vira points out that festival demand remains a long-term tailwind for the sector. Increasing urbanisation is another positive.
Consumption had begun recovering before the current disruption, driven by an uptick in rural consumption post-monsoon and in discretionary segments after GST rate cuts.
Positives of investing in these funds
Consumption funds offer a direct play on India’s domestic growth engine, which is crucial at a time when tariff barriers have gone up in key export markets. “They have relatively lower dependence on global export cycles,” says Nair.
Investors can gain exposure to sectors such as fast-moving consumer goods (FMCG), retail, and automobiles through a single fund. “The investor gets concentrated exposure to the domestic growth story and the possibility of high returns as brands gain scale and market share in an expanding economy,” says Kumar.
Risks of investing in these funds
One risk of investing in traditional FMCG companies pertains to valuation. “These companies may not always be attractive from an investment perspective because of the growth-versus-valuations mismatch,” says Nair.
A slowdown in demand and sensitivity to inflation and interest rates are other key risks.
These thematic funds carry high concentration risk. Diversified funds may already hold consumption stocks, so a separate allocation may raise overall risk without materially improving diversification.
The companies these funds invest in are also sensitive to regulatory changes and sudden shifts in consumer preferences.
The performance of thematic funds tends to be cyclical. “Strong-return phases are often followed by slowdowns when costs rise or demand weakens,” says Azeez.
If investors have a good understanding of the theme and a long-term horizon of five years or more, they may stay invested, provided they believe the original rationale for investing remains intact.
“The recent fall appears linked to temporary factors such as cost pressures and demand slowdown. Exiting now could make investors miss the eventual recovery when margins improve and demand picks up,” says Azeez.
However, investors should review whether their exposure to the theme has become disproportionate. In that case, they may book profits once the theme recovers. Investors who cannot tolerate further volatility or need capital immediately may consider reducing exposure.
New investors are better off avoiding sectoral and thematic funds. They should stick to broad-based diversified equity funds. If they invest in such funds at all, these should be part of their satellite portfolio. “They should enter these funds via systematic investment plans (SIPs) and avoid over-allocation to a single theme,” says Vira.
Double-digit fall over past 3 months
|
|
|
Return (%) |
|||||
|
Consumption Fund |
AUM (~crore) |
1-month |
3-month |
1-year |
3-year |
5-year |
10-year |
|
Aditya Birla Sun Life |
6,184.2 |
-9.6 |
-12.6 |
-1.3 |
13.6 |
12.8 |
15.4 |
|
Mirae Asset Great |
4,472.9 |
-9.3 |
-13.1 |
-0.8 |
15.0 |
14.8 |
16.8 |
|
ICICI Prudential Bharat |
3,092.6 |
-8.5 |
-11.7 |
-1.7 |
14.3 |
14.3 |
NA |
|
Axis |
3,091.5 |
-9.6 |
-12.9 |
-3.2 |
NA |
NA |
NA |
|
SBI |
2,969.8 |
-8.0 |
-12.5 |
-7.3 |
11.7 |
15.2 |
15.2 |
|
|
|
|
|
|
|
|
|
|
|
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Return as on March 20, 2026. AUM as on February 28, 2026.
Source: Value Research
