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Informist, Tuesday, Dec. 2, 2025

 

KOLKATA - After registering muted volume performance since the past four years, the consumer goods industry in the country is expected to see a rebound in terms of volume growth in calendar year 2026, owing to multiple macroeconomic factors pushing the industry's growth to high-single-digit, brokerage Nomura said in a report Tuesday.

 

Key concerns that have impacted volume growth over the past four years - high inflation and low wage growth - which in turn impacted affordability and reduction in mass consumption, are getting addressed with the confluence of multiple positive macro parameters, the brokerage said. The wedding season is also expected to boost consumer sentiment.

 

While the rural economy is expected to reap the benefits of a strong monsoon, which will improve affordability and drive faster volume growth than urban India, demand from urban consumers is also expected to see a cyclical recovery leading to overall volumes making a come-back to mid-single-digit or higher percentage growth, after four years of growth in low single digits.

 

"We expect this to drive high-single-digit sales growth for the sector, which will be marginally higher than its 10-year historical average growth" Nomura said.

 

Even though urban demand is expected to remain weaker than rural demand, premium categories such as skin care, jewellery, and paints are expected to continue to do well due to inelastic demand characteristics.

 

In its report, Nomura highlighted that low inflation, improvement in wage growth, two years of above-normal rains, healthy reservoir levels, four consecutive good crop output, an increase in minimum support prices of crops, a cut in the Goods and Services Tax for daily items, and income tax cuts in the Union Budget 2025-26 (Apr-Mar) will boost consumer sentiment.

 

Over the past four years of weak volume growth and consumption demand, the demand for premium products remained unfazed and continued to grow faster than overall industry growth, while mass consumption was impacted the most due to weak affordability and led to some down-trading to smaller packs and cheaper alternatives.

 

With GST rates for most daily consumption categories being lowered to 5%, Nomura noted that the gap between a tax paying and a non-tax paying or unorganised product has shrunk materially and will encourage the adoption of better quality of goods benefiting organised companies.

 

Given the moderation in raw material prices, Nomura said that new price hikes have been far and few in 2025 and pricing-led growth in sales remains in low single digits. While the brokerage expects this trend to remain at similar levels in 2026, it believes pricing power for consumer companies has improved.

 

However, in case of any spike in raw material costs, the consumer goods companies are expected to opt for price hikes rather than take a hit on their margins, like they did in the past few years due to a weak demand environment. Nevertheless, raw material costs have been benign for most part of the year and are expected to remain stable going ahead.

 

With soft raw material prices and already-taken price hikes, Nomura said that a sequential improvement in gross profit margins is underway for consumer goods companies.

 

"We expect the full benefits of soft raw material prices to kick-in during the second half of the current financial year for most consumer companies, leading them to mean-revert to normative levels," Nomura said in the report. "While we expect advertising spends to remain high, we believe improvement in volume and sales will result in some operating leverage and improve earnings before interest, tax, depreciation, and amortisation margins marginally. We expect this to drive double-digit gross profit growth and early-teens EBITDA."

 

The quick commerce sales channel, which accounts for an average 2% of the total sales for the consumer goods companies continues to grow at 20-30% over the past year. This is faster than other distribution channels of general trade, modern trade and e-commerce channels. Offers like discounts for consumers and 10-minute deliveries are the prime factors pushing quick commerce sales, Nomura said.

 

Given the confluence of multiple macro parameters, Nomura expects the consumer discretionary sector to have a stronger cyclical recovery than consumer staples companies.  End

 

Reported by Avishek Rakshit

Edited by Nishant Maher

 

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