Bajaj Finserv Consumption Fund: A Worthy Proposition to Bet on India’s Consumption Story?

India with its favourable demography, rising income, growing aspirations across the economic strata, and credit support, is keeping India's consumption story alive and kicking. Consumption contributes to more than 60% of India's GDP and is a major engine of India's economic growth.

Post the COVID-19 pandemic, not only non-discretionary spends increased but also discretionary ones across goods and services. Certain high-frequency indicators are indicative of this. FMCG, consumer durables, travel & tourism, media & entertainment, retail (fashion, apparel, jewellery, accessories), automobile (two-wheeler and passenger cars), and many more sectors have witnessed an uptick.

However, much of this consumption has come on the back of credit, i.e. demand for personal loans and credit cards. And very recently, India's consumption story has shown some signs of fatigue because the Reserve Bank of India has been pulling up banks and NBFCS for high weightage to consumption-related personal loans and credit card loans, which are essential unsecured ones for lenders.

Credit-backed consumption, particularly in the unsecured loan segment, carries a high cost and indebtedness and poses a financial stability risk, the RBI Governor has warned.

Several well-known banks and NBFCs have already reported high delinquencies in personal loans and credit cards of late (since July 2024). So, there is stress building up in these portfolios of banks as Indian consumers aspire to meet their desires. The problem is overleveraging by Indian consumers to meet their aspirations.

It should be noted that if the credit funnel narrows (as a consequence of regulatory tightening) India's consumption slowing down further cannot be ruled out. As a result, India's GDP growth may also slow down.

Amid elevated inflation (across several goods and services), the middle class shrinking (as a result of lower real income) is another problem that is weighing on India's consumption story lately. It is sort of pushing back consumers and they are focusing only on non-discretionary spends currently.

This is evident from the lower consumer sales during the festive season; there hasn't been a big leap in consumption this Dussehra and Diwali. Only the well-off or affluent (rich and super-rich) have contributed to the sales be it cars, home purchases and consumer durables. The Ministry of Finance's latest monthly review has acknowledged consumer demand is softening.

Against this backdrop, Bajaj Finserv Mutual Fund -- a new entrant in the Indian mutual fund industry who launched its first equity scheme in July 2023 -- has come up with its New Fund Offer: Bajaj Finserv Consumption Fund. It is an open-ended equity scheme following the consumption theme.

During the NFO period, the Scheme is open for subscription from November 8, 2024, to November 22, 2024. Thereafter the scheme re-opens within 5 business days from the date of allotment.

Bajaj Finserv Consumption Fund has the mandate to allocate around 95% to 100% of its assets in equity and equity-related securities of companies engaged in domestic consumption space or allied activities.

Up to 20% may be invested in equities and equity-related securities of other than companies engaged in domestic consumption space or allied activities.

The Scheme may take exposure to derivatives up to 50% of the equity assets of the Scheme for non-hedging purposes.

The scheme will also invest in non-convertible preference shares up to 10% of net assets.

Investment in ADR/GDR/foreign securities/overseas ETFs shall be up to 20% of total assets in accordance with the guidelines stipulated by SEBI and RBI from time to time.

Further, the Scheme may allocate up to 20% of its assets in debt and money market instruments and units of mutual fund schemes.

Units of mutual fund schemes of Bajaj Finserv Asset Management Company (AMC) or in the Scheme of other mutual funds will be up to 5% of the Net Asset Value (NAV) of the mutual fund.

Debt instruments shall be deemed to include securitized debts (excluding foreign securitized debt). Money market instruments will include commercial papers, commercial bills, Triparty REPO, Reverse Repo and equivalent and any other like instruments as specified by SEBI and Reserve Bank of India from time to time.

The gross exposure of the Scheme to repo transactions in corporate debt securities (including listed AA and above-rated corporate debt securities and Commercial Papers (CPs) and Certificate of Deposits (CDs) shall not be more than 10% of the net assets of the scheme or as permitted by extant SEBI regulation.

The Scheme may also take exposure to securitised debt up to 20% of the debt portfolio. The Scheme shall invest up to 10% of the fixed-income assets in debt instruments having Structured Obligations/ Credit Enhancements in accordance with provisions of SEBI.

Investment in AT1 and AT2 Bonds (instruments with special features) will be up to 10% of the fixed-income assets of the Scheme.

Investment in fixed-income derivatives shall be up to 10% of the fixed-income assets of the scheme for non-hedging purposes.

The Scheme may engage in short-selling of securities in accordance with the framework relating to short-selling and securities lending and borrowing specified by SEBI. In this case, the Scheme shall not deploy more than 20% of its net assets in securities lending and not more than 5% of the net assets of the Scheme will be deployed in securities lending to any single counterparty.

Furthermore, the Scheme may invest up to 10% of its total assets in units issued by REITs and InvITs.

Pending deployment of the funds in securities in terms of the investment objective of the Scheme, the AMC may park the funds of the Scheme in short-term deposits of the Scheduled Commercial Banks (SCBs), subject to the guidelines mentioned in SEBI.

The Scheme will not invest in a fund of fund scheme and Credit Default Swaps (CDS).

What Is the Investment Objective?

The objective of the Scheme is to generate long term capital appreciation by predominantly investing in equity and equity-related securities of companies that are likely to benefit directly or indirectly from the domestic consumption-led demand.

However, there is no assurance that the investment objective of the Scheme will be achieved.

What is the Investment Strategy?

To achieve the stated investment objective, Bajaj Finserv Consumption Fund will follow an active style of fund management to provide long-term capital appreciation by investing 80-100% of total assets in equity and equity-related securities of companies that are likely to benefit directly or indirectly from the domestic consumption-led demand.

The Scheme would invest in stocks across market capitalization, however, may take concentrated exposure to certain stocks/sectors/industry.

The Scheme aims to capture the wide-ranging investment opportunities presented by consumer investment theme which responds to lasting changes in the emerging and developed markets. It does not focus solely on the consumer sector but on a broad range of sectors that will benefit from increased consumption. So, the fund manager would not have any bias towards a particular market cap or style in selecting investment opportunities.

The indicative list of sectors/industry falling under the consumption theme as per Industry classification issued by AMFI are as follows:

• Automobile and Auto Components

• Capital Goods

• Consumer Durables

• Consumer Services

• Fast Moving Consumer Goods

• Media, Entertainment & Publication

• Realty

• Textiles

• Any other industry/sector that forms part of the benchmark index

Note that, the above list is indicative, and the fund manager may add such other sectors/industries which satisfy the consumption theme. The fund manager may also add other sectors as may be added in the Nifty India Consumption Index from time to time.

The scheme may invest up to 20% of its total assets in equities and equity-related securities of other than companies engaged in domestic consumption space or allied activities.

The scheme may use derivatives traded on recognized stock exchanges for hedging, portfolio rebalancing and other purposes as may be permitted by SEBI. Derivatives instruments may take the form of Futures, Options, Swaps or any other instrument, as may be permitted from time to time.

The Scheme may use SLBM for earning additional income for the scheme with a lesser degree of risk.

The Scheme may also invest a part of its corpus in overseas markets in Global Depository Receipts (GDRs), ADRs, overseas equity, bonds and mutual funds and such other instruments as may be allowed under the Regulations from time to time.

The scheme may take exposure in units of REIT and InvITs at an opportune time to generate income from real estate or infrastructure assets. Investing in units of REITs and InvITs has the potential to generate capital appreciation and regular income streams.

When investing in debt & money market securities aims to identify securities which offer optimal level of yields/returns, considering the risk-reward ratio. To control risks rigorous in-depth credit evaluation of the securities proposed to be invested in will be carried out by the Risk Management Team of the AMC.

The credit evaluation includes a study of the operating environment of the issuer, the short as well as long-term financial health of the issuer. Rated debt instruments in which the Scheme invests will be of investment grade as rated by a credit rating agency.

In addition, the investment team of the AMC will study the macroeconomic conditions, including the political, economic environment and factors affecting liquidity and interest rates. The AMC would use this analysis to attempt to predict the likely direction of interest rates and position the portfolio appropriately to take advantage of the same.

To use fixed income derivatives for purposes, the Scheme may take the form of forward rate agreement, interest rate Swaps, interest rate future or any other instrument, as may be permitted from time to time.

By and large, Bajaj Finserv AMC follows an INQUBE investment philosophy. The INQUBE fund management philosophy is based on first principles understanding of the market dynamics. The process at its core emanates from the studied realisation that fund alpha is an outcome of three edges namely the Information edge, the Quantitative edge and the Behavioural edge of the investment team. At its core, the INQUBE investment philosophy borrows from human nature and behavioural finance as a knowledge discipline.

To realise the edge at the stock ideas hunting stage, the process shall involve a simultaneous application of top-down and bottom-up research to identify potential investments. It also involves evaluating business cycles and trends, such as momentum and trend reversal patterns, to identify potential investment opportunities and the stage of growth of such potential ideas.

At the ideas analysis stage, the process involves analysing the business, management and valuation to guide the stock selection process.

While undertaking the allocation decisions, the business shall be filtered on account of its size, quality, valuation, growth outlook, and risk; to measure and structure the allocation.

As regards, the portfolio turnover, being an actively managed open-ended equity mutual fund scheme, the fund manager shall endeavour to optimize portfolio turnover to maximize gains and minimize risks keeping in mind the cost associated with it. The Scheme has no specific target relating to portfolio turnover.

The AMC/Sponsors/Trustee do not guarantee that the investment objective of the Scheme will be achieved. No guaranteed returns are being offered under the Scheme.

How Will the Scheme Benchmark its Performance?

Bajaj Finserv Consumption Fund will benchmark its performance against the Nifty India Consumption Total Return Index (TRI).

The Nifty India Consumption Index (launched on July 12, 2011, with a base date of January 2, 2006) is designed to reflect the behaviour and performance of a diversified portfolio of companies representing the domestic consumption sector which includes Consumer Non-durables, Healthcare, Auto, Telecom Services, Pharmaceuticals, Hotels, Media & Entertainment, etc. and where more than 50% of company's revenue comes from domestic markets (other than export income).

The Nifty India Consumption Index comprises 30 companies listed on the National Stock Exchange (NSE) and is rebalanced semi-annually with the weightage of the index constituent (where applicable) capped at 10%.

At present, the top 10 constituents of the Nifty India Consumption Index are as under:

Since the base date of January 2, 2006, the Nifty Consumption Index has clocked a price return of 13.8% CAGR and a total return (which includes dividends) of 15.2% (as of October 31, 2024).

Being an actively managed open-ended equity scheme, it is important that Bajaj Finserv Consumption Fund outperforms the benchmark index over longer periods.

Here's what Mr. Ganesh Mohan, CEO of Bajaj Finserv AMC said speaking to the media on the launch of the fund:

"India's consumption landscape is dramatically shifting due to increased income levels, a surge in urbanization, and a transition from basic to discretionary spending. Consumption as a theme is favourable for investment now as the fundamentals are stronger as compared to the broader markets.

With growth in sectors like FMCG, food services and quick commerce, realty and auto, which are expected to witness significant expansion in the coming years, we firmly believe that this fund will be an asset to our investors' portfolios in the long run."

Mr. Nimesh Chandan CIO has added as under:

"The consumer sectors have come to attractive valuations compared to their own historical valuation as well as a premium to broad markets."

Who Will Manage Bajaj Finserv Consumption Fund?

The equity portion of the Scheme will be managed by the CIO, Mr. Nimesh Chandan.

Nimesh is a commerce graduate (B.Com) and has to his credit a Masters in Management Studies (MMS) in Finance. He has over 23 years of experience in the Indian Capital Markets.

Nimesh has spent 17 years in fund Management -- managing and advising domestic and international investors, retail as well as institutional.

Before joining Bajaj Finserv Asset Management Ltd, he has worked with Canara Robeco Asset Management as Head of Investments, Equities (Domestic and Offshore). He has also worked with other asset management companies including Birla Sunlife Asset Management, SBI Asset Management and ICICI Prudential Asset Management.

At Bajaj Finserv Asset Management he co-manages various mutual fund schemes.

The debt portion of the Scheme will be managed by Mr. Sorbh Gupta and Mr. Siddharth Chaudhary.

Sorbh is a commerce graduate (B.Com), a Chartered Accountant (CA) and a Chartered Financial Analyst (CFA). He has over 16 years of experience in the Indian Capital Markets.

Since November 2022, Sorbh was appointed as Senior Fund Manager - Equity at Bajaj Finserv Asset Management Limited. He Sorbh co-manages various mutual fund schemes.

Before joining Bajaj Finserv Asset Management Ltd. he was associated with Quantum Asset Management Company Private Ltd. He has also worked with other financial Companies such as Siddhesh Capital Markets Pvt. Ltd. & Pranav Securities Pvt. Ltd.

Mr. Siddharth Chaudhary is also a commerce graduate and has done his Post Graduate Programme in Sustainable Management (PGSM). He joined Bajaj Finserv Asset Management Ltd. in July 2022 as Senior Fund Manager - Fixed Income. He currently co-manages the debt portion of various mutual fund schemes.

Before this, he was associated with Sundaram Asset Management Co. Ltd from April 2019 to July 2022 as Head of Fixed Income - Institutional Business, from April 2017 to March 2019 as Senior Fund Manager - Fixed Income, from August 2010 to March 2017 as Fund Manager - Fixed Income. From June 2006 to September 2010, he worked as Senior Manager, Treasury Dept in Indian Bank.

How Much is the Minimum Investment in Bajaj Finserv Consumption Fund?

During the NFO period, i.e. from November 8, 2024, to November 22, 2024, and on an ongoing basis, the minimum lump sum investment in the Scheme is Rs 500/- and multiples of Re 1/- thereafter. This applies to switch-in transactions.

In the case of the Systematic Investment Plan (SIP), daily, weekly, fortnightly, monthly, and quarterly options are available. The minimum investment amount is Rs 500/- with a minimum of 6 instalments.

The Scheme offers both, the Direct Plan and Regular Plan for investment and each Plan offers the Growth Option and the Income Distribution cum Capital Withdrawal Option (IDCW) for investing.

[Read: IDCW vs Growth Option: Which One Should You Opt for]

Who Should Consider Investing in Bajaj Finserv Consumption Fund?

Investors looking for capital appreciation over the long term by mainly investing in equity and equity-related instruments of companies that are likely to benefit directly or indirectly from the domestic consumption-led demand can consider this Scheme.

That said, given that it is an actively managed thematic equity scheme, be ready to assume very high risk and have an investment horizon of 7 to 8 years. There would be sector-specific and concentration risk with the fortune of Bajaj Finserv Consumption Fund closely linked to how the consumption theme fares going forward.

To know more about the Bajaj Finserv Consumption Fund, read the Scheme Information Document and Key Information Memorandum.

Happy Investing!