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India's consumer sector is showing signs of a strong rebound, supported by several positive developments, according to a recent report by UBS.
The report suggested that the sector, which has underperformed in recent years, is now positioned for a recovery as multiple factors align in its favour. It said, "The consumer sector looks ready to rebound, with several factors aligning favourably, Earnings look set to recover in FY26". It expects earnings in the consumer sector to grow by around 13 per cent in the financial year 2025-26 (FY26), following a weak performance in FY25, where median earnings growth is estimated to be just 1 per cent. This projected recovery is largely driven by improving earnings, income support measures, and more attractive stock valuations. One of the key growth drivers identified in the report is the potential income stimulus over the next few years. This includes the possibility of lower taxes and the implementation of the Eighth Pay Commission, which is expected to boost the purchasing power of consumers. These measures could lead to a revival in demand across many consumer categories and support a longer phase of earnings growth. The report said, "Potential income stimulus - lower taxes and the upcoming Eighth Pay Commission over the next three years - could spur a demand revival in many categories and an extended earnings growth phase". Additionally, the report added that the sector's valuations have corrected sharply--by as much as 35 per cent since October 2024. This makes consumer stocks more attractive to investors, especially in a market that may continue to show low risk appetite. At the same time, if risk appetite returns, the sector stands to benefit from that as well. The report also highlighted how unusual the consumer sector's recent underperformance has been. Typically, this sector performs well during bull markets, as well as during bear markets when investors look for safer, defensive options. However, since the market peak in October 2024, the sector has continued to lag, even as broader markets have sought defensive plays. UBS believes this rare trend now creates a favourable setup for the sector's performance going forward. The main reason for the sector's weak performance has been its inconsistent earnings growth. But the report noted that the input cost cycle and base effects are expected to turn positive in FY26, providing further support for earnings recovery. The report expects a 13 per cent growth in earnings for FY26 and projects an average annual growth rate (CAGR) of 12.8 per cent between FY25 and FY27. (ANI)
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