NIFTY Non-Cyclical Consumer Index Fund: Here's How to Use Market Fluctuations to Your Advantage

From the beginning of the calendar year (CY) 2024, positive momentum continues to gather steam in the stock market. However, this does not rule out the concern of market fluctuations, especially against the backdrop of heightened geopolitical tensions and economic disruptions. For instance, so far the average volatility index (VIX) is down 20%. 

However, there is a high probability of a surge, especially as the earnings season is set to begin and the country is amidst the polling season, point out analysts. 

Having said that, it is very much possible to use the market fluctuations to your advantage—and the NIFTY Non-Cyclical Consumer Index Funds, also known as defensive stocks, hold the answer. 

NIFTY Non-Cyclical Consumer Index Decoded

First things first, let’s understand the difference between non-cyclical versus cyclical companies. Generally, the non-cyclical companies are entities that produce essential goods whose demand remains stable across different phases of the economic cycle. For example, these include food, water and power, among others. 

On the other hand, cyclical companies produce goods that can see relatively large increases in demand during economic upswings and vice-versa. For instance, these include luxury goods, automobile, travel and leisure, retail, to list just a few. 

Notably, the NIFTY Non-Cyclical Consumer Index mirrors the performance of portfolio of stocks that broadly represent the Non-Cyclical Consumer theme within the basic industries such as consumer goods, consumer services, telecom, services, media, entertainment, publication, textiles sectors, etc. 

The largest 30 stocks from eligible basic industries (seven industries in total shown in the sector-wise break up) are chosen based on their six-month average free-float market capitalisation (m-cap) as on the cut-off dates at the end of January and July. The weight of the stocks in the index is based on their free-float m-cap with the weight of a stock in the index capped at 10%. 

The NIFTY Non-Cyclical Consumer Index has been a super consistent performer since 2011. Going by the historical performance of the index, it suggests lower than market drawdowns, beta and higher returns than the NIFTY 50, across the long- and short-terms. The NIFTY Non-Cyclical Consumer Index Funds outperform their industry in the stock market even in the face of economic disruptions. They are not influenced by cyclical changes and are in constant demand due to the every day needs of consumers.

Sector-wise Break up:

Sector Composition 

Sector Representation	Weight (%0
Fast Moving Consumer Goods	43.14
Consumer Services	21.48
Consumer Durables	20.08
Telecommunication	11.00
Services	2.57
Textiles	1.07
Media, Entertainment & Publication	0.65

Simply put, the stock’s beta is a measure of its volatility compared to the market as a whole. The NIFTY Non-Cyclical Index Stocks generally have a low beta of less than 1, highlighting the non-cyclical characteristics of this index observed historically. The beta of the NIFTY Non-Cyclical Consumer Index relative to the NIFTY 500 Index has ranged between 0.66-0.98 since CY2005. 

Top Constituents

Source : NSE Indices

Data as on March 28, 2024

Performance

The NIFTY Non-Cyclical Consumer Index has showcased better performance than the NIFTY 50 as highlighted in the following table:

Drawdowns

The NIFTY Non-Cyclical Consumer Index is more stable during drawdowns and better risk-adjusted returns than the NIFTY 50 as the following table highlights:

	NIFTY 50	NIFTY NON-CYCLICAL CONSUMER
Feb-April 2008	-24.49%	-23.92%
Sept-Dec 2008	-45.13%	-36.46%
Aug-Oct 2011	-14.07%	-7.93%
April-June 2012	-9.14%	1.08%
June-Sept 2013	-6.84%	-0.90%
Oct 2015 - Jan 2016	-6.68%	-11.13%
July - Sept 2019	-10.29%	-3.83%
Feb - April 2020	-34.42%	-16.04%
May -July 2022	-10.71%	-6.86%
Oct - Dec 2022	-6.52%	-10.46%
Jan - April 2023	-7.61%	-6.21%

Sharpe Ratio

As a thumb rule, the higher the Sharpe Ratio, the greater the potential return on investment. Typically, a Sharpe Ratio of over 1 is considered as favourable. 

	15 years			10 years			5 years
Fund	Returns	Standard Deviation	Sharpe	Returns	Standard Deviation	Sharpe	Returns	Standard Deviation	Sharpe
NIFTY NON-CYCLICAL CONSUMER	17.66%	5.03%	1.57	16.38%	4.24%	1.96	17.22%	4.50%	2.09
NIFTY 50	15.40%	5.70%	0.99	14.57%	4.84%	1.35	16.15%	5.61%	1.49
NIFTY Total Market Index (TMI)	15.23%	5.93%	0.92	14.99%	5.00%	1.39	16.46%	5.75%	1.51

Valuations

Take a look at the valuations, which look favourable with the current Price-to-Earnings (P/E) ratio being below 5 and 10 year average.

 

Wrapping it up

Groww Mutual Fund is set to launch the country’s first NIFTY Non-Cyclical Consumer Index Fund. The new fund offer (NFO) is expected to go live in the first week of May 2024. It is your key to investing in a largely stable, first-of-its-kind index product, which holds the potential to be downturn-proof with low volatility. 

Moreover, buoyed by the current consumer confidence in the economy and driven by factors such as urbanization, digitization and increase in organized sector market share, the NIFTY Non-Cyclical Consumer Index Fund remains an opportunity that holds significant upside potential.

Investors with a lower risk profile and those looking for stable consistent return while capitalising on India’s rising per capita GDP can conveniently opt for the NIFTY Non-Cyclical Consumer Index Fund and gain from long-term capital appreciation.