Consumption-themed mutual funds have recorded a one-year decline of approximately 4.9%, despite India’s strong 7.8% GDP growth. This gap between economic data and fund performance stems from a shift in consumer habits toward unlisted brands and sluggish rural demand. Traditional portfolios are finding it difficult to capture the fastest-growing market niches as inflationary pressures continue to impact household budgets.
India’s economy is currently growing at a strong pace, with GDP figures hitting 7.8 percent in the first quarter of fiscal year 2027, surpassing initial forecasts. Despite this positive macroeconomic picture, consumption-themed mutual funds have failed to reflect the same optimism. Data shows that many funds in this category have delivered negative one-year returns, averaging around 4.9 percent. This disconnect suggests that the broader economic growth is not being evenly captured by the companies typically held in these mutual fund portfolios.
The Shift Toward Unlisted Brands
A primary reason for this underperformance is a fundamental change in how Indians shop. Consumers are moving away from traditional, large-listed companies that typically dominate mutual fund portfolios and are instead choosing home-grown, regional, and organic brands. Many of these emerging companies are unlisted, meaning they are not available for purchase on the stock exchange. As a result, when consumers spend more on these new products, traditional listed companies do not benefit, and the mutual funds holding these established stocks see limited growth.
The K-Shaped Consumption Trend
The market is currently experiencing a so-called K-shaped consumption pattern. On one side, premium and discretionary spending—such as travel, dining, and lifestyle products—remains resilient and continues to grow. On the other side, mass-market and entry-level consumption, which includes basic household staples, remains sluggish. Because many traditional consumption mutual funds are heavily invested in large, mass-market consumer goods companies, they are struggling to benefit from the growth happening in the premium and discretionary segments of the market.
Inflation and Rural Headwinds
Persistent inflationary pressures are adding to the difficulty. Rising food and fuel costs have forced many households, particularly in rural areas, to reduce their spending on non-essential items. Rural demand, which is a major driver for many FMCG companies, has remained weak due to these rising costs and unpredictable weather patterns. This creates a difficult environment for the companies within the consumption funds, as they face pressure on both sales volumes and profit margins.
Investors looking at this sector may want to monitor how these companies manage their costs and whether rural demand begins to recover. The ability of fund managers to look beyond traditional indices and find companies that are successfully adapting to these new consumer preferences will be a key factor for future performance.