The consumer discretionary sector is expected to witness a mix of growth and challenges in the coming quarters, driven by evolving consumer preferences, rising input costs, and regulatory pressures, said a research report by brokerage firm Systematix.
The report. highlights growth in apparel and jewellery but warns of margin pressure from rising input costs, discounting, and demand volatility. While value apparel retailers and premium brands are driving strong growth, the brokerage said margin pressures are emerging due to higher discounting and rising input costs. The jewellery sector is expected to see exceptional growth led by gold price inflation, wedding demand, and festive purchases, though margins may soften due to product mix shifts.
“Retail expansion remained aggressive across sectors, supporting strong topline growth but weighing on near-term profitability due to higher operating costs,” points out the report. The sector is witnessing a shift in consumer behaviour, with one-stop shops offering wide assortments at competitive prices gaining popularity in Tier 2 and Tier 3 towns. However, the ongoing Middle East conflict poses risks to consumption and remains a key monitorable for the sustainability of the current demand recovery, according to the brokerage firm.
The consumer discretionary sector likely witnessed a growth uptick in the March quarter of the financial year 2025-26, driven by strong performance in value apparel retail, premium fashion, and jewellery. Value apparel retailers drove strong growth through store expansion and improved same-store sales, while premium brands continued their steady momentum.
The jewellery sector saw exceptional growth led by gold price inflation, wedding demand, and festive purchases. “The jewellery industry in 4QFY26 has demonstrated remarkable resilience and strong growth momentum, characterised by robust consumer demand despite significant gold price volatility,” said Systematix.
The alco-beverages segment saw a divergent performance, with IMFL players leading growth while the beer segment remained relatively weak. The prestige and above segment continues to see strong double-digit volume growth, driven by new product launches.
The Quick Service Restaurant (QSR) sector showed early signs of recovery, but demand volatility and LPG-related disruptions kept margins under pressure. Gross margins remained healthy due to stable raw material prices, but restaurant margins remained under pressure due to discounting and negative operating leverage.
The sector is facing several challenges, including rising input costs, particularly in polyester and packaging materials, regulatory challenges in the alco-beverages segment, and demand volatility in the QSR sector.
“Apparel companies are facing potential margin pressure due to a steep increase in polyester prices, which may impact results from 1QFY27 onwards unless these costs are passed to consumers,” said Systematix.
Despite these challenges, the sector is expected to continue its growth momentum, driven by increasing penetration into Tier 2 and Tier 3 towns, where one-stop shops offering a wide range of products at competitive prices are increasingly preferred.
According to the Economic Survey 2025-26, domestic demand in India has grown significantly, but this trend may slow. The Survey says that, the economy is currently in its most consumption-driven phase since 2012. In 2025-26, private final consumption expenditure (PFCE) accounted for 61.5 per cent of gross domestic product (GDP), the highest level since 2011-12.
The Survey, tabled in Parliament on January 29, 2026, discloses that domestic demand remains a strong driver of economic growth in FY26. Private final consumption expenditure increased by approximately 7 per cent in FY26. Its share of the country’s total economy (GDP) reached 61.5 per cent, the highest level since 2012. In other words, the Indian economy’s growth is currently largely driven by private spending.
According to the Survey, low inflation, relatively stable employment conditions, and increased real incomes have helped drive this spending. Improved agricultural performance has boosted purchasing in rural areas, while tax reforms and rationalisation have also improved the spending environment in cities. Overall, market demand remains strong.
However, a close look at the half-yearly data in the Survey showed that the growth rate of private final consumption expenditure was 7.3 per cent in the first half of FY25. This increased to 7.5 per cent in the first half of FY26.
At the full fiscal year level, growth is estimated at 7.2 per cent (provisional estimate) for FY25, but 7.0 per cent (first advance estimate) for FY26.
The Survey clarified that for now, the strong consumption witnessed in the first half of FY26 and supportive high-frequency indicators from the third quarter suggest that private consumption is likely to remain resilient throughout this year. ANI
