Consumption Cycle Set to Bottom Out: Jefferies Turns Positive

After a challenging 2025, Jefferies believes India’s consumer and internet landscape is poised for a recovery. The past year was marked by muted demand, margin pressure, and disruption from GST 2.0 for staples, mixed performance across discretionary and retail categories, and divergent trends within internet businesses.

Staples Sector: Challenges and Opportunities

The staples sector had a difficult year in 2025, with volume growth remaining muted despite a low base. Margins were squeezed by inflation and volatility in key inputs, and urban demand lagged even as rural outperformed. Unseasonal rains hurt summer categories, and the rollout of GST 2.0 triggered short-term disruption across channels, leading to de-stocking and delayed consumer purchases.

However, Jefferies expects 2026 to mark an improvement as channel issues stabilize and companies benefit from easing inflation, tax cuts, and the low base across several categories. GST 2.0 is expected to increase disposable income and bolster demand across consumer categories.

Discretionary and Retail Space: Divergent Trends

The discretionary and retail space showed clear divergence in 2025. High gold prices weakened jewelry demand, impacting buyer growth for Titan, although Jefferies notes the company managed the situation well and expects this to continue. Value retailer Vishal Mega Mart reported strong revenue growth, driven by rapid store additions and resilient demand in tier-2+ cities, even as DMart and Trent saw moderation.

The brokerage expects CY26 momentum to continue for Vishal Mega Mart, with Trent and DMart also gaining from a lower base. Quick-service restaurants faced severe SSSG pressures except Jubilant FoodWorks, which benefited from self-help measures, though the industry has yet to see a meaningful recovery. Jubilant FoodWorks is expected to see Ebitda growth driven by margin expansion even as SSS moderates on a normalizing base.

Internet Sector: Bright Spot

The internet sector remained one of the brightest spots, with quick commerce continuing explosive growth, led by Blinkit, both in scale and profitability. Swiggy too saw strong growth, though losses remain significant, and the firm flags rising competitive intensity as a key risk.

Food delivery growth moderated to about 17% YoY in late 2025 and is expected to stay around these levels. Nykaa’s beauty GMV is projected to grow at around 25% YoY, in line with recent quarters, while Lenskart is seen as a strong growth opportunity given its leadership position but only around 5% market share and substantial margin expansion potential.

Top Stock Picks for 2026

Jefferies’ top picks over a 12-month view reflect selective optimism. Eternal remains a compelling opportunity, with the nearly 20% correction from peak offering an entry point. Asian Paints is expected to sustain volume growth momentum alongside a recovery in industry demand. VMM is positioned as a value retail play, driven by strong same-store sales and store additions.

In staples, Britannia is seen as a key beneficiary of GST cuts with one of the strongest expected volume growth outcomes in coverage. GCPL is expected to benefit from a low base and correction in input prices, while Marico is projected to maintain momentum in its base business and gain share in higher-growth portfolios, with margin gains from softer inputs.

Key Macro Swing Factor: GST 2.0

A key macro swing factor through the year has been GST 2.0. Implemented on 22 September 2025, it reduced tax rates across several categories. Many consumer goods that were taxed at 18% — including toothpaste and brushes, hair oil, shampoo, soaps, biscuits, chocolates, and Ayurveda products — moved to 5%, while products earlier at 12% such as condensed milk, instant noodles, cheese, dried fruits, frozen vegetables, and namkeens also moved to 5%.

Jefferies argues that the long-term picture is far more constructive. Lower GST rates are expected to increase disposable income and bolster demand across consumer categories at a time when the sector was already navigating moderate demand trends. Over the medium term, this should support higher volumes, partly via higher grammage in small packs, with the visible benefits likely emerging from December 2025 onwards.

For investors looking to capitalize on the recovery in India’s consumer and internet landscape, Indian stock market tips and stock market news can provide valuable insights and guidance. By staying informed and up-to-date on the latest developments and trends, investors can make informed decisions and navigate the complex and ever-changing landscape of the Indian stock market.