Premiumisation Drives India's Consumer Growth Amid Margin Pressures

A Jefferies report notes India's consumer sector is set for growth via premiumisation and digital adoption, but faces near-term margin pressure from raw material inflation. Internet firms are gaining, while staples see less interest.

India's consumer sector is seeing growth opportunities from premiumisation, rising digital adoption and the expansion of organised retail beyond major cities, but raw material inflation is emerging as a key near-term pressure on margins, Jefferies said in a report based on its India Consumer & Internet Forum.

“Premiumization remains a strong LT positive theme, while margin pressure emerged as a key near-term concern,” Jefferies said, summarising discussions with 24 companies at the forum, where internet and new-age businesses led investor interest, while consumer staples attracted relatively limited attention.

Internet and New-Age Companies Lead Growth

The report said internet and new-age companies are benefiting from a large and growing market, higher frequency of use and improving monetisation. Food aggregator ‘Eternal’ expects around 20 per cent medium-term growth in food delivery, while online market place ‘Meesho’ is targeting around 25 per cent annual growth in net merchandise value over the next five years. Swiggy expects 18-20 per cent full-year food-delivery growth, with its quick-commerce business continuing to invest in expansion.

Organised Retail Expands Beyond Major Cities

Jefferies also highlighted the growing reach of organised retail beyond major cities. More than 80 per cent of recent Zudio additions by Trent have been in Tier-2 and Tier-3-plus markets, while Vishal Mega Mart plans more than 100 store additions annually and sees headroom for around 3,000 stores across its formats.

Diverging Trends: Premiumisation and Inflation

The report said premiumisation remains visible across beauty, fashion, watches and alcoholic beverages. Nykaa expects its fashion business, which reached break-even in the fourth quarter of FY26, to improve margins over the medium term. However, higher input costs are creating a countertrend. Raw material inflation remains a key monitorable for paints, quick-service restaurants and staples. Quick-service restaurant companies also flagged near-term margin concerns despite maintaining longer-term growth plans.

Consumer Staples 'Out of Favour'

The report said the consumer staples segment was “out of favour” at the forum, although companies continue to pursue premium products and new categories. Tata Consumer Products expects double-digit revenue growth in FY27 and 50-70 basis points of margin expansion, while Marico expects premium, food and digital-first portfolios to account for 33 per cent of revenues by FY30.

Future Outlook

Jefferies further noted that the consumer outlook will depend on whether companies can sustain growth from premiumisation, digital adoption and wider retail penetration while managing commodity costs and protecting margins.

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