Rising volumes, higher margins could lift these thematic offerings

With a reduction in goods and services tax (GST) slabs from four to two, and many goods being shifted to lower brackets, consumption is expected to get a boost.

- SANJEEV SINHA

Consumption funds, which invest in fast-moving consumer goods (FMCG), consumer durables, auto, retail, and hotels, have delivered flat returns (-1.4 per cent) over the past year. The rate cuts, along with other factors, are expected to bring about a turnaround in the performance of these funds.

Impact of rate cuts Discretionary categories like auto, consumer durables, footwear, and apparel stand to gain. "These are segments where consumers typically defer purchases in a high-cost environment, so a price reduction can trigger elasticity and accelerate volume recovery," says Siddhant Chhabria, research analyst and fund manager, Mirae Asset Investment Managers (India).

The cuts are likely to accelerate a shift from the unorganised sector to organised. "Consumption funds are likely to benefit on account of better volume-led growth for companies benefitting from the rate cut, and also due to possibly higher discretionary spends on account of higher disposable incomes," says Priyanka Khandelwal, fund manager, ICICI Prudential Mutual Fund.