India’s consumer sector, which has faced a period of underperformance in recent years, is now showing clear signs of a robust revival, according to a recent report released by UBS. The financial services firm forecasts a notable turnaround, driven by a combination of improving fundamentals and favorable macroeconomic factors.
UBS estimates that the sector’s earnings will grow by approximately 13% in the financial year 2025-26 (FY26), following a subdued performance in FY25, where earnings are expected to rise by just 1%. This anticipated rebound is attributed to multiple supportive factors, including better earnings prospects, income-boosting policy measures, and more appealing stock valuations.
One of the central themes of the report is the potential income stimulus expected over the coming years. UBS points to the likelihood of tax reductions and the implementation of the Eighth Pay Commission as key drivers that could enhance consumer purchasing power. These measures are expected to spark a revival in demand across a wide range of consumer categories, contributing to a more sustained earnings growth trajectory.
“The alignment of various factors such as income support measures and improved valuations makes the consumer sector ripe for a rebound,” the report noted. “A recovery in earnings seems likely in FY26, with the potential for extended growth over the next few years.”
Stock valuations within the consumer space have undergone a significant correction—dropping by nearly 35% since October 2024—making them more attractive for investors, especially in an environment of cautious sentiment. The report added that if investor risk appetite returns, the sector could see an even stronger performance.
Interestingly, the report highlighted that the sector’s recent lag is atypical. Traditionally, consumer stocks tend to perform well both in bull markets and during downturns, as they are considered safer, defensive options. However, since the broader market peaked in October 2024, the consumer sector has not mirrored its usual defensive strength, marking a rare deviation from historical patterns.
UBS believes this unusual underperformance now sets the stage for a positive re-rating of the sector. With base effects and input cost pressures expected to ease in FY26, the conditions are improving for a recovery in profitability.
Looking ahead, the report anticipates an average annual earnings growth rate (CAGR) of 12.8% between FY25 and FY27, signaling strong medium-term prospects for the sector.
As multiple tailwinds begin to converge, India’s consumer sector appears poised for a significant turnaround, potentially offering attractive opportunities for long-term investors.
