India’s consumer sector is expected to experience a strong recovery, with UBS forecasting a 13% earnings growth in FY26. This growth is driven by potential income stimulus measures, such as tax cuts and the Eighth Pay Commission, as well as attractive stock valuations. Despite global uncertainties, India’s macroeconomic stability remains robust, with inflation easing, a reduced fiscal deficit, and an annual real GDP growth of 6.5%.
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India’s consumer sector is poised for a strong comeback, according to a recent UBS report, after years of underperformance. The report highlights a number of favourable developments that are expected to drive a recovery, positioning the sector for renewed growth.
UBS forecasts a significant improvement in sector earnings, projecting a 13% growth in FY26. This comes after a subdued FY25, where median earnings growth is estimated at just 1%. The anticipated rebound is attributed to improving earnings visibility, supportive income measures, and more attractive stock valuations.
A key growth catalyst identified in the report is the potential for income stimulus over the next few years. Measures such as possible tax cuts and the implementation of the Eighth Pay Commission are expected to enhance consumer purchasing power. These developments could help spark a broad-based demand revival across multiple categories and sustain an extended earnings upcycle.
“Potential income stimulus—including lower taxes and the upcoming Eighth Pay Commission over the next three years—could drive a demand recovery and support prolonged earnings growth,” the report stated.
Another supportive factor is the sharp correction in sector valuations, which have declined by up to 35% since October 2024. This makes consumer stocks more attractive, particularly in a market with low risk appetite. Should investor sentiment improve, the sector stands to gain further upside.
The report also pointed out the unusual nature of the sector’s recent lag. Historically, the consumer sector has outperformed in both bull and bear markets due to its defensive nature. However, since the market peak in October 2024, it has under-delivered—even as investors leaned toward safer bets. UBS attributes this anomaly primarily to inconsistent earnings growth in recent years. However, the outlook is now improving. Easing input costs and favourable base effects are expected to contribute positively to earnings performance in FY26.
Overall, UBS projects a 13% growth in consumer sector earnings for FY26 and expects a compound annual growth rate (CAGR) of 12.8% between FY25 and FY27—marking a promising phase of recovery for India’s consumer segment.
Despite growing global uncertainties, UBS expects India’s macroeconomic stability to remain relatively secure in FY26. Specifically, the report projects:
The report also foresee the possibility of 75 basis points of monetary easing starting in early 2025, driven by slower domestic growth and lower global interest rates. The UBS EM rates strategist anticipates the 10-year Indian Government Bond (IGB) yield to fall to 6.25% by the end of FY26, compared to 6.5% in FY25.
Given ongoing trade tensions, the US$/INR exchange rate is expected to face upward pressure, with the rupee potentially reaching 87.0 by FY26 year-end, up from 84.5 in FY25.
As per the report, India will maintain a potential real GDP growth rate of 6.5% year-on-year from FY26 to FY28, positioning it as the world’s third-largest consumer market by 2026 and the third-largest economy by 2027 (after the US and China). Nominal GDP is expected to rise from US$ 4 trillion in FY25 to over US$ 6 trillion by FY30.
India’s growth potential, according to the report, is supported by a boost in manufacturing, exports, services, and digitalisation, driving productivity and efficiency. However, challenges persist, including the need to create productive jobs for a growing working-age population, adapting to a less favorable global environment, and the impact of automation.
The report highlights that India’s growth prospects could face challenges stemming from trade tariffs through several channels:
However, shifting global policies could also open up fresh avenues for India, reinforcing its position as a key beneficiary of the ‘China + 1’ strategy and driving supply chain diversification in the medium term.
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