Axis Mutual Fund, one of the fastest-growing fund houses in India, today announced the launch of their new fund– ‘Axis Consumption ETF’. The new fund offers (NFO), which will open on Monday, August 30, will allow exposure to the consumption theme in a neatly packed bite sized exchange traded fund.
The new fund offers long-term wealth creation solutions and targets to achieve returns by investing in a basket of NIFTY India Consumption Index stocks.
India’s economy already had strong growth prospects for the next ten years. The trend line in India’s annual GDP growth has been accelerating from 5.8% in the 1990s to 6.9% in the first 2 decades of the new millennium (source: Morgan Stanley). We believe this trend will likely continue for the next decade given the following structural factors:
- Favourable demographics: Over the next 10 years, 122 million individuals are likely to enter the work force, which is equivalent to about 20% of India’s current work force. (source: Morgan Stanley)
- Globalization: This provides the enabling factors of external demand and financing that can be used to boost growth.
- Reforms: The government is continuing the reforms that India started in the early 1990s, which relate to the ease of doing business, FDI, government finances, taxation, infrastructure and greater autonomy for states.
Digitization adds an incremental fillip to this growth in our view. Digitization is integral to two changes: a) policy initiatives that are boosting financial inclusion and b) technology changes that are reducing the cost of delivering financial services to the masses and small enterprises. These, along with the government’s focus on employment for all, will make growth more inclusive, which in turn makes us more confident about India’s growth outlook.
A key beneficiary in this growth is consumption. As an aspirational populous India, today, stands next only to China as the largest growth prospect in consumption ecosphere. As median incomes rise, the expenditure pie for Indian families are likely to increasingly pivot to discretionary spends which include entertainment, travel, consumer appliances and even property.
This growth has already resulted in significant growth across many B2C businesses across a variety of sectors. An indicator of this performance is The NIFTY India Consumption. The index comprises of a diversified grouping of companies across sectors like Consumer Non-durables, Healthcare, Auto, Telecom Services, Pharmaceuticals, Hotels, Media & entertainment, etc. that reflect the essence of consumption in India today across essentials and discretionary spending. The NIFTY India Consumption Index comprises of the 30 largest consumption oriented companies by free float market capitalization.
The potential of passive investing in the Indian financial markets has gained quite momentum and seems likely to stay. The two most popular vehicles for passive investing are index funds and exchange-traded funds. Passive Investing is a low friction investment strategy tracking a specific index as closely as possible. It participates in the constituents in the same proportion as the index and removes the risk of security selection at an efficiently low cost strategy by relying on broader market wisdom.
Apart from being cost effective, ETFs let investors invest at real-time prices as opposed to end of day prices by sector funds. It protects their investments from the inflows and outflows of short-term investors. Furthermore, ETFs are best suited to earn asset-class linked performance and is touted to be one of the most flexible tools for gaining instant exposure to the markets, thereby equitizing cash.