NFO Review: ICICI Prudential Bharat Consumption Fund - Series 1 focuses on consumptionICICI Prudential Bharat Consumption is a closed-ended fund which targets India’s consumption spending. The fund will benefit from rising consumption of goods like packaged food, clothes, cosmetics, phones cars and ACs in India. It will be free to invest in large, mid and small-cap stocks and has a tenure of about 3.5 years. The overall theme is quite similar to the Aditya Birla Resurgent India Fund (Series 6) which closed for subscription on 7th March.

The fund will be managed by industry veteran Sankaran Naren who is also the co-head of equities overall at ICICI Prudential Mutual Fund. Its co-manager Atul Patel has been with ICICI Mutual Fund since 2009 and also manages several other ICICI funds such as ICICI Multicap Fund and ICICI FMCG Fund.

Why consumption?

Nuclear Families

India’s shifting family structure towards nuclear families (as opposed to joint families) increases the number of households and hence the demand for goods like TVs, refrigerators, microwaves and so on. Nuclear families also spend 20-30% more per capita, than joint families.

Rural Catch-up

Rural consumption is converging with urban consumption as government schemes lift rural incomes. The spread of mobile phones and technology has also increased rural aspirations.

Defensive

A nation’s GDP is divided into three components – consumption, investment and government spending. Out of the three, consumption is generally the most steady component while the other two highly sensitive to economic cycles, geopolitics and/or interest rates. A play on consumer stocks can thus turn out be a good ‘defensive’ bet in an economic downturn.

Investment Strategy

The fund will invest in consumption oriented sectors such as consumer durables (TVs, ACs etc); non-durables (biscuits, packaged food etc); telecom, automobiles, pharmaceuticals, hotels and media.

RupeeIQ Take

Consumption is a safe bet. India is growing at a fast pace and growth lifts consumer spending. On the other hand consumer stocks are generally expensive and a lot depends on the fund manager’s stock picking skills.

A major argument for closed-ended funds is that the fund manager will invest more efficiently without the threat of large outflows. However this is less true in consumer good companies that tend to be large and liquid.

Invest in the fund if you want to avoid the temptation and stress of jumping in and out of open ended sector funds. If you prefer liquidity, go for a open-ended counterpart such as ICICI FMCG fund.

Key Details

NFO Period: 22nd March to 5th April

Options: Growth and Dividend

Benchmark: Nifty India Consumption Index

Fund Managers: Sankaran Naren and Atul Patel

Tenure: Close-ended, 1,300 days (A little more than 3.5 years)

Minimum Investment: Rs 5,000

Author
Neil Borate

Neil Borate is Deputy Editor, RupeeIQ. He can be contacted at neil@rupeeiq.com.