Demand is surging as India enters its busiest consumption season, with a run of Hindu festivals and the monsoon harvest. Companies selling shampoos, jewellery, baby formula and watches say orders are strong. Many are even managing to raise prices.
Yet the shares of bellwethers such as Hindustan Unilever Ltd. and Maruti Suzuki India Ltd. have fallen to multiyear lows. That gap between a buoyant consumer and a sulking market is the puzzle facing investors.
Strong demand, weak stocks
Indian equities have lagged global markets for more than two years, losing nearly half their value in relative terms as foreign money left. Disappointing earnings, little exposure to the artificial-intelligence boom, US tariffs and oil-price spikes linked to the Iran war have all hurt.
Some bulls clung to one hope: once consumer demand picked up, company earnings would improve and revive returns. The latest quarterly results suggest that hope may be fading. A consumption boom may not be enough to end the market’s underperformance, and India could see fast economic growth alongside a sluggish stock market.
The demand picture itself is healthy. Redseer Strategy Consultants expects the e-commerce market to grow at its fastest pace in five years and reach a record $90 billion in 2026. Official data show the trend rate of consumer demand has moved up a couple of notches among the country’s 1.5 billion people.
Dabur India Ltd., Nestlé India Ltd. and Titan Co. are among the firms reporting double-digit sales growth. Most are raising prices because demand is robust.
Profits, not sales, are the worry
Investors are now rewarding resilience over headline growth. The question is how much of that growth turns into profit when higher input costs, taxes and other pressures squeeze margins. Shareholders have little patience for consumer companies that chase sales by giving up margins.
Oil is a central concern. India imports almost 90% of its crude needs. Eight months into the Iran war, average profit at companies in the Sensex is 11% below forecasts made a year earlier.
Costlier fuel and freight are also feeding into food and everyday goods prices, and will eventually limit how much households spend. Stocks are pricing in that possibility. Imported inflation is expected to last until the war ends, and economists see it staying high well into 2027.
Some of the strain is already visible in consumer companies’ results. Crude-derived ingredients and other inputs have become dearer, raising the cost of making soaps, detergents and cosmetics. Price increases are not enough to cover this, even as demand runs ahead of supply.
The festival calendar, which is packed from October to January, adds a temporary lift. Families spend on ritual-linked purchases seen as necessities, which helps profits in the short run. That support will fade once the season ends.
What could turn things around
In the near term, the Iran war needs to end before a lasting rally can return. An unwinding of the AI frenzy could also help, since India is increasingly seen as a beneficiary of money rotating out of technology.
The government and the Reserve Bank of India have roles too. Containing inflation and steadying the rupee will be essential to bringing investors back. A rate hike by the RBI alone is unlikely to achieve either.
The Centre should watch grain and vegetable supplies closely and prevent shortages caused by hoarding and speculation. State governments, the author argues, should consider fixed per-litre fuel levies instead of percentage-based taxes. Percentage taxes bring in more revenue automatically as oil prices climb, giving local authorities a stake in the very increases that hurt consumers.
Over the longer run, India needs to cut its reliance on fossil fuels by shifting to renewable and other alternative energy. That would help break the cycle of oil shocks, pressure on the rupee, falling foreign-exchange reserves and ever tighter currency-management steps by the central bank.
For now, consumers and the stock market are telling very different stories. A strong economy alone will not persuade investors to return in force if the spending boom is to last.
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