The report states that key indicators like healthy reservoir levels and states introducing welfare schemes for women to aid consumption are expected to support the recovery
A recovery in rural demand is likely to lead the gradual revival in the Indian consumer sector from the first quarter of the current financial year 2026 (Q1FY26), even with the expectation of urban demand remaining subdued in the near term, as per a report by HDFC Securities.
The report highlighted that green shoots have been observed regarding rural recovery, which will support companies moving forward from the first quarter onwards. Key indicators like healthy reservoir levels supporting agricultural output and yield moving ahead and states introducing welfare schemes for women to aid consumption are expected to support the recovery. Budgetary allocation to rural development outpacing gross domestic product (GDP) growth on-year will also play a crucial role, as per the report.
“We expect the urban demand to remain subdued in the near term and foresee recovery in the medium term as hyperinflation across key line items (food, rent and medical) moderates gradually, enabling consumer demand to revert to normalcy, and the income tax relief provided in the February 2025 budget,” the report highlighted.
Owing to the inferior product mix and inflation predominantly in agricultural commodities (wheat, edible oil, tea, coffee, copra, milk), the gross margin is likely to contract to 130 basis points (bps) year-on-year (YoY). The report added that a gradual build-up in gross margin is expected in the coming quarters as companies take calibrated price hikes and see increased premiumisation, given the moderation in food inflation led by a strong Kharif and Rabi crop harvest.
“We expect our consumer coverage to report a mid-single-digit revenue growth of six per cent YoY, mainly driven by price hikes. At an aggregate level, we anticipate EBITDA growth of two per cent and Pat decline of one per cent YoY in Q4FY25 due to negative operating leverage and gross margin pressure (excluding the liquor segment),” the report added.
The demand environment for fast-moving consumer goods (FMCG) has not seen any meaningful improvement due to several factors, with the macroeconomic environment remaining subdued, specifically in the urban landscape. The rise of quick commerce has led to market share gains at the expense of traditional channels and the flexible direct-to-consumer brands have a competitive edge within the quick commerce space, as per the report.
