India's consumption story has shown significant improvement in the second half of FY26, aided by tax relief measures and a better macroeconomic environment, according to Bank of America's latest analysis. Aditya Mathur, Research Analyst at BofA, noted that the latest earnings season turned out to be more encouraging than analysts had anticipated a few months ago, with the second half of fiscal 2026 showing better performance on the consumption side. As per ET Now, the aggregate has definitely moved up, with the bigger delta seen on the staple side, while discretionary consumption has continued to grow at a healthy double-digit pace. The improvement has been supported by a combination of favourable base effects and improvements in the broader economy, with tax cuts, particularly GST reductions, starting to flow through to consumers and helping boost spending.
Indian consumers are becoming more cautious with their finances amid global uncertainty, prioritising value and long-term financial stability while adjusting spending patterns accordingly. According to Kantar's latest consumer sentiment survey, consumer optimism about the Indian economy has weakened significantly, with just 48% now believing the economy will improve in 2026, compared with 60% in January. Concerns over employment have intensified, with the proportion of people worried about layoffs rising from 36% to 41%, while financial confidence at the household level has weakened, with around 61% of consumers expecting their savings and investments to either stagnate or decrease during the year. Medical expenses remain the leading concern, mentioned by 85% of respondents, followed by the rising cost of living at 80%, with retirement planning another major worry, with 78% expressing concerns about having sufficient funds later in life. Future financial preparedness is emerging as one of the strongest concerns for households, with 71% worrying about meeting rent and loan EMI commitments.
Consumer spending behavior is becoming more deliberate and selective as households navigate economic uncertainty. According to Kantar's survey, the proportion of consumers intending to increase discretionary expenditure on activities such as dining out, entertainment, shopping, and subscriptions has slipped slightly from 55% in January to 53% in May, while those planning to reduce such spending have risen from 8% to 10%. Similarly, consumers expecting to spend more on big-ticket items declined from 46% to 44%, while those intending to cut back increased significantly from 11% to 16%. Inflation continues to be the biggest factor influencing spending decisions, cited by 65% of respondents, with other reasons including the desire to build savings and concerns about economic conditions. Expectations around personal financial growth have also moderated, with 61% expecting their savings and investments to either remain same or decline versus 2025, while only 39% expect them to increase.
Despite positive demand trends, recent developments in West Asia have significantly altered the cost environment for consumer companies, creating new challenges for profitability. According to BofA's analysis, post the West Asia developments, we've actually had a very significant cost push, especially on the oil basket. Several consumer companies have already implemented price hikes to offset rising input costs, but the full impact of inflation is yet to be reflected in earnings. Companies have resumed raising prices after a prolonged period, and consumers are still paying levels that are either similar to or lower than those seen a year ago due to earlier GST-led reductions. However, BofA believes these increases may not be sufficient to fully protect profitability, with the situation becoming more challenging from the second quarter onwards as low-cost inventories get exhausted.
Bank of America Global Research has significantly revised India's earnings growth expectations downward, forecasting just 8.5% growth for FY27, well below the Street's estimate of around 15%. As per CNBC TV18, Amish Shah, Head of India Research at BofA Global Research, said the brokerage expects earnings growth to remain much weaker than broader market expectations in 2026-27 as companies face pressure from higher commodity prices, geopolitical tensions and slowing demand conditions. Shah noted that every quarterly earnings season could lead to further cuts in market expectations, with corporate India becoming increasingly cautious about the first half of FY27 due to the West Asia conflict, elevated commodity prices, possible El Niño impact and the risk of higher interest rates.
Despite India's relatively resilient valuation multiples, Maheswari highlighted that premium valuations have long been a sticking point for global investors, but are largely sustained only when growth visibility improves. According to CNBC TV18, global investors continue to stay engaged with India, but near-term foreign inflows may remain weak as investors wait for more attractive valuations and better clarity on growth. Maheswari acknowledged 'peak pessimism' in the markets and suggested that from current levels, modest returns of 10% index returns could be delivered till the end of the year. Energy security has also emerged as a major policy focus, with policymakers discussing multiple areas including biofuels, coal gasification, electrification and oil & gas exploration to reduce long-term energy risks.
