Here's why placing bets on consumption space could pay good dividends, says HSBC Global AMC

"Wherever earnings have been strong and delivered consistently, we have seen an expansion of PE. So if one were to look at some of the FMCG sectors, we would see that expansion of the PE has gone from multiples of 50 to 70 to 80 though there is no faith that this will continue forever."

“For now the visibility continues to remain in discretionary sectors. We also see some earnings resilience in real estate, in very large banking as well. So, there are pockets where one can focus right now,” added Pradhan.

On pharma sector front, he mentioned, “Each of the companies have their own issues, challenges and responses in terms of how they have taken the issues about hygiene and especially the observations of FDA etc. I think the lessons have been learned. Therefore, the future looks a lot rosier as opposed to where we were a year back.”

On the consumption space, he said, “Low-ticket consumption, which is staples and high ticket consumption is getting into discretionary spend. The discretionary spend is still a wait and watch though there are pockets where we have seen strong resilience."

India continues to be a consumption story although investments into infrastructure and capacity have been much lower than the likes of China but our consumption percentage contribution to GDP is significantly higher and this the trend is likely to continue, he added.

“We do see a pick up again back into high-end consumption, which could take maybe six months to a year but that is something that one can look at. One is also popularly looking at things such as discretionary space in consumer durables including air conditioners, washing machines etc,” Pradhan said.

In the last couple of years, NBFCs, which have been the drivers for consumption have taken a breather but as things start to pick up, we could see volumes coming back, he said.

According to him, one cannot go wrong on consumption if one talks about India as an economy. So, placing your bets here could definitely give good dividends in the next year or so.