Capex to consumption: Emkay suggests investment ideas amid sectoral churn

Capex to consumption: Emkay Global adjusts investment strategy amid shifting consumption trends across urban and rural India

India’s consumption landscape undergoes significant changes, where the urban markets are increasingly leaning towards affordable value products, while rural consumers are embracing aspirational branded goods. Given this, consumer goods firms are adjusting their strategies to navigate the shifting demand patterns, according to Emkay Global Financial Services.

 

The brokerage, thus, recommends making certain changes in the investment strategy.

 

In the near term, for consumer staples, the brokerage expects a gradual volume growth recovery ahead, although it suggests selective cherry picks-- Godrej Consumer Products, Marico, Emami, and Bikaji.  

 

For consumer discretionary, Emkay recommends picking value convenience retailers-- Jubilant Foodworks and Eternal (Zomato)-- with healthy topline growth ahead amid a structural formalisation opportunity. 

K-shaped pattern emerge as urban demand fades, rural revival holds

FY26 so far has seen "mixed-to-tepid" consumption indicators, with urban demand under pressure while rural demand is showing structural signs of revival, the brokerage noted.

 

The labor market composition is improving, raising real income and productivity with the reshaping of the non-agricultural rural economy, noted Emkay. However, urban consumption levers-- excess savings, strong wage growth, leveraged consumption-- have faded, with disproportionate impact across strata. This has given rise to a K-shaped consumption pattern.

 

A K-shaped consumption pattern describes a situation where different segments of society experience vastly different consumption trends following an economic event, like a recession or pandemic.

 

Additionally, Emkay identifies a "K within a K" consumption pattern, where upper- and middle-income urban consumers are now prioritising value over premium products. In contrast, rural and semi-urban markets are increasingly gravitating toward aspirational branded products.  Track Stock Market LIVE Updates

Rotational shift to consumption

The persistent "chicken-and-egg dilemma" between private investment and consumption— each heavily dependent on the other— has become a problem, as the government has reached its spending limits, according to Emkay Global Financial Services report.

 

This whole scenario, believes Emkay, is expected to keep India’s overall growth stuck below 7 per cent (FY26 is estimated at 6 per cent). Thus, analysts at the brokerage have shifted their focus to "mini-cycles and sectoral rotations”.

 

Over the years, the economy rotated from post-Covid export-led growth to public capex-driven investments. These themes appeared to have lost sheen in FY25, and a slow shift was seen toward consumption after the government provided measures to boost consumption, such as lowering personal income tax rates.

 

Private capital expenditure (capex) is now showing signs of further slowdown and for India's growth story to sustain, consumption growth will need to do the front-running ahead, according to Emkay.