India Consumption Outlook

Divergence in Consumption Trends

The consumption landscape has exhibited mixed trends over the past two years. While mass-market categories have experienced a slowdown, high-value discretionary segments have demonstrated resilience. This divergence is primarily due to the impact of food and services inflation on lower- and middle-income households, coupled with only a modest increase in income growth, which has reduced their spending on these categories. In contrast, the rise in the number of affluent households, less affected by inflationary pressures, has supported sustained demand in discretionary categories. Additionally, competitive intensity has increased significantly, with new entrants across various segments impacting the growth trajectory of large, listed companies, particularly in staples and mass discretionary categories.

Hopes of recovery in mass consumption

While a material shift in consumption patterns is yet to be observed, moderating inflation, reduction in interest rates, and the benefits of income tax cuts are expected to lead to a gradual improvement in demand for mass consumption categories, following two years of sluggish growth. Although most companies are optimistic, our on-ground feedback from channel checks has not yet indicated a meaningful recovery. A heavy monsoon has also impacted some categories, particularly durables, in recent months, making it difficult to assess any improvement in consumer sentiment.

Selective optimism across categories

After two years of underperformance across staples and mass discretionary categories, the outlook appears to be turning positive and demand trends should improve. The softening of commodity prices, led by a decline in crude oil, is expected to improve earnings from 2HFY26. Valuations are also relatively moderate compared to their historical averages. Accordingly, we maintain an overweight stance on staples (excluding tobacco) and mass discretionary. The structural rise in affluent households continues to support demand for discretionary goods. While this is a structural theme, valuations across most names in this segment remain elevated, with a lot of optimism already priced in. We are hence playing this theme selectively.

Within the automobile sector, a slowdown in passenger vehicle sales and moderating volume growth in domestic two-wheelers has been observed since mid-2025. Select two-wheeler companies are showing consistent growth, supported by market share gains and export momentum. We believe that the income boost from tax cuts, along with festive season demand, could drive near-term volume growth. Nonetheless, we remain cautious on the sector and are overweight on select names.