Indian consumer discretionary sector to show mixed signals: HDFC Securities

Mumbai, July 12, 2025 — The Indian consumer discretionary sector is poised to exhibit mixed signals in the upcoming quarters, driven by diverging trends across segments and evolving macroeconomic variables, according to the latest sectoral outlook released by HDFC Securities. While urban demand remains relatively resilient, rural demand recovery continues to lag, influenced by erratic monsoons, inflationary pressures, and shifting consumption patterns.

Diverging Trends Within the Sector

The consumer discretionary sector, encompassing automobiles, retail, apparel, electronics, and leisure goods, has historically been a proxy for economic confidence and income growth. However, the current picture appears fragmented.

"We are observing contrasting performances across sub-segments within the discretionary basket. While premium and urban-focused categories continue to do well, mass-market and rural-facing brands are under pressure," noted Deepak Jasani, Head of Retail Research at HDFC Securities.

For instance, passenger vehicle sales and premium fashion categories have maintained momentum due to higher disposable incomes among urban consumers. Conversely, entry-level two-wheeler demand, budget apparel, and tier-3 market consumption have remained subdued.

Macro Headwinds and Demand Constraints

The report outlines several headwinds that continue to cast a shadow on broad-based discretionary spending:

• Rural Inflation & Agri Stress: High food inflation, coupled with lower-than-expected rabi output and erratic rainfall this monsoon, has dampened rural incomes. This, in turn, has affected demand for entry-level products.

• Elevated Interest Rates: Costlier loans have impacted big-ticket purchases like two-wheelers and consumer durables in non-metro regions.

• Evolving Consumer Behaviour: Post-COVID consumption patterns are now firmly skewed towards experience-driven and premium purchases among urban millennials, leaving traditional FMCG and budget retail behind.

“The K-shaped recovery in discretionary demand is real. Higher-income groups are spending, while the mass segment is still cautious. Disparities have widened,” said Jasani.

Segment-Wise Performance Outlook

Auto & Two-Wheelers

The automobile segment continues to reflect the economic divergence. According to HDFC Securities, SUVs and EVs are outperforming, while motorcycle sales in the sub-125cc segment are still 15–20% below pre-COVID levels.

“Entry-level vehicle sales will likely stay muted until rural cash flows improve. Inventory build-up in certain states is also a concern,” the report stated.

Retail & Apparel

Organized retail is seeing steady traction, especially in metro cities and e-commerce channels. However, footfall growth in smaller cities has plateaued.

"Apparel retailers with strong D2C (direct-to-consumer) strategies and premium positioning are faring better than value-focused players," the report highlighted. Brands targeting the aspirational middle class are also investing heavily in online platforms to tap into evolving digital demand.

Consumer Electronics

Spending on electronics like smartphones and appliances is stable, driven by replacement cycles and the popularity of BNPL (Buy Now Pay Later) schemes. But HDFC warns of margin pressures due to intensified competition and rising input costs.

Market Context & Earnings Visibility

The Nifty Consumer Durables index has shown marginal underperformance in recent months compared to the broader market, reflecting investor caution. Analysts attribute this to delayed demand recovery in rural India and persistent cost pressures.

“The earnings visibility for discretionary firms is mixed. While premium names like Titan, Trent, and Maruti Suzuki continue to deliver, others like V-Mart and Hero MotoCorp are struggling to meet growth expectations,” said HDFC analysts.

The brokerage expects the festive season in Q3 and Q4 to provide clearer signals regarding consumer appetite, especially with the upcoming Diwali and wedding season typically driving high-ticket sales.

Investor Outlook: Selective Opportunities Ahead

Despite the uneven terrain, HDFC Securities maintains a neutral-to-cautious stance on the sector, advocating a selective investment strategy.

"Investors should focus on quality stocks with strong brand equity, pricing power, and diversified channel strategies. Exposure to rural-dependent names should be calibrated until visibility improves,” the report advised.

Top picks in the sector include:

• Titan Company – on the back of premiumization and urban demand.

• Trent Ltd. – due to strong same-store sales growth and fashion-forward inventory.

• Maruti Suzuki – supported by product innovation and market leadership in passenger vehicles.

The consumer discretionary space in India is currently at a crossroads. As macroeconomic uncertainties persist and demand recovery remains lopsided, companies with clear positioning, pricing power, and digital agility will likely be better poised to thrive.

For investors, navigating this sector calls for a discerning eye on company fundamentals, rural revival triggers, and seasonal trends. While risks persist, the long-term consumption story in India remains intact — albeit with short-term turbulence.