Festive demand and GST reforms may give momentum to consumer sector, pressure remains on rural demand

Consumer companies are likely to perform better in the second half of FY 2026 as a result of festive demand and GST reforms, according to a report by Systematics Research. It stated that consumer products have witnessed a marginal boost. While discretionary consumption continues to lag pre-Covid levels, though.

The results for the first quarter of FY 2026 were sluggish, but improvements are already visible quarter-on-quarter. According to the report, declining inflation, normalisation of the supply chain, and increased festive season demand are expected to accelerate the sector's recovery in the second half.

Consumer goods companies reported a 6.5% growth in revenue in the first quarter of FY26. At the same time, sales grew by 3.5%. Both indicators were slightly better sequentially.

Urban demand showed signs of improvement, while rural demand remained stable. However, adverse seasonal conditions impacted categories such as juices, carbonated beverages, ice cream, dairy, sun and skin care products, and paints.

The report said that volume demand is expected to improve in the second half of FY26 due to reduced inflation and wider distribution. Food and beverages may also benefit from possible GST rate cuts.

However, rural demand still remains fragile. The report said that recovery in rural markets is seen not due to income growth, but due to reduced inflation. Consumption of rural households still depends on government transfers. Declining savings, rising food expenditure and rising informal borrowing are adding to the pressure. Strong monsoon has boosted agricultural production, but low crop prices are limiting agricultural income.

Rural consumer confidence has improved marginally, while urban confidence remains disappointing. Nevertheless, non-essential spending in cities has started to increase again, which could boost the overall sector recovery in the second half of the year.