Mirae Asset’s Fund Manager Siddhant Chhabria believes India is entering a multi-year consumption upcycle, driven by easing inflation, tax reliefs, and a rural rebound. In an interview with ET Markets, the fund manager explains why consumer discretionary is better poised than staples to capture the next leg of demand recovery.Edited excerpts:Let's start with the big picture. Do you think we're at the cusp of a multiyear consumption upcycle given tailwinds related to rising middle-class, lowering of interest rates and tax, etc?Definitely, consumption in our view is a multi-year theme for the Indian economy. Consumption has grown below its potential post covid which can be measured by below potential growth in personal consumption expenditure (PCE). PCE has grown at ~9% CAGR during FY19-25 vs ~13% CAGR over FY10-19. We have seen a divergence in demand trends (K-shaped) during this period, high inflation impacted affordability of lower and middle class households which dented demand for mass consumption products while premium products continued to do well. We are now seeing several factors at play which can drive mean reversion in mass consumption a) Inflation is now at multi-year low driven by global slowdown & food deflation, b) Income Tax Relief: 1 lakh crore per annum from April 2025 onwards, C) Interest Rate cuts, d) Rural recovery led by better crop yields and e) 8th pay commission w.e.f Jan 2026.You manage the Mirae Asset Great Consumer Fund. How are you positioning the portfolio to ride this consumption wave? Are you leaning more towards staples, discretionary, or something else entirely?Portfolio construction is largely bottom-up and driven by a risk-reward equation for each position. Currently, we are overweight consumer discretionary and underweight staples as the discretionary sector can grow at 1.5-2x GDP growth while staples have the potential to grow at ~1x GDP. Both sectors are trading at similar valuation but discretionary can grow faster. Additionally, discretionary companies saw sharper earnings cut during the last 2 years due to operating deleverage which impacted margins, this can reverse as demand normalises.Rural demand is finally perking up after a long lull. What are the early signals you're seeing on the ground, and how are you playing this rural revival in your fund?Yes, you are right. Macro datapoints and commentary from FMCG companies does suggest rural is recovering (first real recovery post covid). Real rural wages have turned positive after a year, MGNREGA demand is lower vs last year (indicating lesser stress), reservoir levels are higher than LPA along with expectations of a good monsoon and Rabi harvest is expected to be healthy. We are playing this via value fashion, footwear, autos (tractors & entry level PVs) and FMCG.The 8th Pay Commission and tax reliefs could be a bazooka over the next two years. How do you see this playing out across different consumption verticals?Experts estimate 8th pay commission would result in a wage hike of ~4 lakh crore annually (centre + state) w.e.f. Jan 2026 – which would be a massive ~stimulus of about 110 bps of GDP. Along with this income tax relief (1 lakh crore annually), would benefit households with income of Rs 12-50 lakh, who will see effective tax rate reducing by 2-5% (implying 1 lac p.a. savings). Both of these will benefit middle class households. Majority of the incremental spends will be diverted towards discretionary spends and hence can benefit sectors like QSR, Travel, Autos, Home improvement, Fashion, White goods etc.What's your take on the growing quick commerce market? Do you see q-com companies emerging as one of the biggest winners of the tailwinds that we spoke about above?Q-com is under-penetrated and hence growth is not a function of macro recovery. Q-com stocks are more dependent on evolving competitive landscape and showcasing profitability. While it does appear that losses for the industry have peaked and could reduce going forward, it is still not clear whether these biz can sustainably deliver healthy profitability.There’s a growing consensus that the RBI could cut rates by 100 bps in 2025. What does that mean for interest-rate sensitive sectors like autos and housing? Are they the sleeping giants of the next bull run?The real estate industry is in its 4th year of upcycle and interest rate cuts could further give legs to this cycle. Although, we prefer building materials as a proxy play to real estate as demand could be at an inflection point as these products participate during the 3rd or 4th year of construction. Along with new construction, home renovation demand could also see a cyclical recovery (was impacted because of inflation) due to interest rate cuts.Autos will also benefit, particularly the small car segment which can see a recovery (first time post covid) driven by interest rate cut and 8th pay commission.Consumption stocks have traditionally commanded premium valuations. Given the current macro setup, do you see room for further re-rating or is the market already pricing in the good news?During the last 2 years consumption has been weak but we haven't seen de-rating for the sector, valuations are trading similar to pre-covid levels. However, earnings cut has been sharp as a result stocks have underperformed. We can see positive earnings surprises in some pockets whenever demand recovers led by operating leverage.What's one underappreciated consumption theme that you think the market is sleeping on right now?Revival in mass consumption across segments.
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