India's consumption story remains strong, but rural demand faces inflation risks: Report

New Delhi: India's consumption growth is expected to remain resilient over the coming years, supported by a young population, rising aspirations, premiumisation and increasing digital adoption, although rural income pressures and food inflation could weigh on near-term demand, according to a research report by 360 ONE Capital.

The brokerage said the recent strength in festive-period demand reinforced its confidence in consumption resilience and maintained a constructive outlook on the sector.

"We remain constructive on the India consumption opportunity and the scope for penetration gains as the per capita income rises," the report said.


However, the brokerage cautioned that demand could remain uneven across income groups, with premium consumption continuing to outperform mass-market categories. It also flagged concerns over rural demand amid the impact of the Super El Nino weather cycle, lower rainfall and potential pressure on agricultural incomes.

The firm noted that food inflation could further constrain rural consumption, as food accounts for a larger share of household expenditure in rural areas compared to urban markets.

"We remain concerned about food inflation given Super El Nino-linked weather changes," it said, adding that the brokerage remained hopeful of improvement in urban mass-market consumption.

Highlighting the structural changes shaping the consumer sector, 360 ONE Capital identified category formalisation, premiumisation, digital adoption, quick commerce and increasing spending on health and wellness as key themes likely to influence consumption over the next decade.

The brokerage also highlighted the growing influence of Gen Z consumers, who account for around 45 per cent of overall consumption, according to industry sources cited in the report.

"Companies' ability to stay relevant amid changing consumer wallets while effectively competing against emerging D2C players/entry of large conglomerates, is key for success," the report said.

It added that companies would need to invest in productivity-enhancing measures using artificial intelligence, improve supply-chain agility and accelerate new product launches to remain competitive.

While moderating crude prices could provide some relief from input cost pressures, food inflation, particularly in milk, sugar and packaging, remains a key monitorable. The brokerage also cautioned that increasing competition from large conglomerates and direct-to-consumer brands could intensify pressure on established players.