India’s consumption story has shown signs of improvement in the second half of FY26, aided by tax relief measures and a better macroeconomic environment. However, rising commodity prices triggered by geopolitical tensions in West Asia could test the sustainability of this recovery in the coming quarters, according to Aditya Mathur, Research Analyst at Bank of America.
In an exclusive interview with ET Now, Aditya Mathur said recent corporate earnings from the consumer sector have been stronger than expected, particularly in staples, though challenges remain ahead.
Consumer demand better than expected
Mathur noted that the latest earnings season turned out to be more encouraging than analysts had anticipated a few months ago.
“The earning season has actually ended up being a little bit better than what we had anticipated a couple of months back. In fact, the second half of fiscal 26 has been a little bit better on the consumption side,” he said.
According to him, a combination of favourable base effects and improvements in the broader economy has supported demand. Tax cuts, particularly GST reductions, have started flowing through to consumers and are helping boost spending.
While staple categories have witnessed a stronger rebound, discretionary consumption has continued to grow at a healthy double-digit pace, he added.
West Asia conflict raises cost pressures
Despite the positive demand trends, Mathur cautioned that recent developments in West Asia have significantly altered the cost environment for consumer companies.
“Post the West Asia developments, we’ve actually had a very significant cost push, especially on the oil basket,” he said.
Several consumer companies have already implemented price hikes to offset rising input costs, but the full impact of inflation is yet to be reflected in earnings.
“It is a bit of a flux kind of a situation. We have had a decent performance in the last two quarters, but now we are in a bit of a question mark,” Mathur said.
Price hikes may not fully offset margin pressure
According to Mathur, companies have resumed raising prices after a prolonged period, and consumers are still paying levels that are either similar to or lower than those seen a year ago due to earlier GST-led reductions.
“After the GST cuts, prices came down. Now that companies have taken up pricing once again, we’re probably getting back to the same level,” he further said.
However, they believe these increases may not be sufficient to fully protect profitability.
He said, “We have seen a price increase, but it’s clearly not enough from a margin standpoint.”
He expects consumer companies to manage margins in the immediate term using lower-cost inventories but warned that the situation could become more challenging from the second quarter onwards as those inventories get exhausted.
“The big question will be from the second quarter onwards, where the low-cost inventory will get utilised and the inflation impact will start to play in,” he said.
Monsoon remains a key variable for rural demand
On the monsoon outlook, Mathur said it is too early to draw definitive conclusions despite concerns after forecasts were revised lower.
The India Meteorological Department (IMD) had earlier projected monsoon rainfall at around 92% of the long-period average, which has since been lowered to 90 per cent.
While reservoir levels remain supportive, she said the bigger concern is not crop production but consumer sentiment in rural areas.
“There is definitely an impact on sentiment, especially in rural markets,” he said.
“That’s the big variable that I would watch out for rather than just sowing itself,” he added.
Discretionary demand trends remain mixed
Mathur believes discretionary consumption continues to outperform staples in several segments, though performance varies widely across categories.
Summer-orientated products such as cooling appliances and beverages witnessed some volatility due to unseasonal rainfall in parts of northern India during April and May.
However, he indicated that demand conditions have improved in recent weeks.
“The start was not great, but in the last two-three weeks it seems that some of these tailwinds or benefits will start to kick in.”
Jewellery segment shows resilience
Among discretionary categories, jewellery has remained one of the strongest performers despite concerns surrounding higher gold prices and recent government commentary encouraging moderation in gold purchases.
“Jewellery as a category has been supremely resilient for a fairly long period of time,” he added.
Mathur acknowledged that recent policy measures, including import restrictions and customs duty changes, may impact demand in the near term. However, she believes they could accelerate the formalisation of the jewellery industry over the medium term.
“Supply tightening measures actually end up being a big positive for the overall formalisation of this industry,” he said.
He added, “While the supply side I would be fairly comfortable with, the demand aspect is something that we would still watch out for.”
Mathur suggests that India’s consumption recovery remains on track, supported by tax relief measures, improving macroeconomic conditions and resilient discretionary spending.
However, rising commodity costs linked to geopolitical tensions, evolving inflation trends, and uncertainty around the monsoon could become key factors determining whether the momentum sustains through the remainder of FY26.
(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money-related decisions.)
