Investors find their way back to retail and consumer checkout aisle

Valuations normalise, dealmaking surges and investors return to India's consumer sector, with record Q1 activity driven by aspirational demand and demographic tailwinds

India’s retail and consumer sector is buzzing again, recording its highest deal activity in three years in the first quarter (Q1) of 2025. Deal value rose to $5.7 billion, up 26.6 per cent from Q1 of 2023, while deal volume hit 289 transactions — a 41.6 per cent jump, according to Bloomberg data. 

 

Experts say that after a period of capital market frenzy and sky-high valuations that made private deals challenging, rationalisation is bringing investors back. Private equity (PE) firms, conglomerates, and strategic buyers are now eyeing opportunities to plug portfolio gaps, tap rising aspirational demand, and build on long-term consumption tailwinds in the world’s fastest-growing major economy.

 

“The sector has almost always attracted both buyers and investors,” said Nitin Gupta, partner, EY. Until recently, high valuations and initial public offering (IPO) hype made private deals unattractive, but as valuations normalise, investor interest in private opportunities is picking up, he said.

 

“In the past few months, valuations have become slightly more reasonable. But compared to other key sectors, the consumer space still carries among the highest valuations,” said Ravi Swarup, partner, Bain & Company.

 

Underlying this renewed interest is the long-term allure of India’s consumer market, projected to reach $4.3 trillion in spending by 2030.

 

“The sector reflects aspirations of a young, rapidly transforming demographic — more working women, rising middle-class entrants in Tier-II and Tier-III cities, and a tendency to buy higher-end products that offer better margins,” said Ketan Dalal, managing partner, Katalyst Advisors. 

 

From a demographic standpoint, the opportunity is hard to ignore. “Age, economic status, urbanisation — all are trending favourably for India for at least the next 25 years,” said Swarup. “The question is whether you’re on the right side of that opportunity — either by creating a brand or buying into one.”

 

While some insurgent brands have scaled from the ground up, not every investor has the patience or capability to build from scratch. “Everyone wants a piece of the consumer opportunity — and M&A is the best way to do it,” he said.

 

Certain sub-sectors have emerged as capital magnets. “Food and beverage has always been an evergreen sector,” said Gupta, pointing to Temasek’s $1 billion acquisition of a 10 per cent stake in Haldiram and ITC’s $55.5 million purchase of 24 Mantra Organic.

 

“Personal care is another favourite,” he added, citing the challenges of scaling brands across complex distribution channels. In January, Hindustan Unilever acquired a 90.5 per cent stake in skincare brand Minimalist for $341.1 million. 

 

“People prefer to do larger deals,” said Gupta. He added that most activity has been led by domestic players, even as global strategic players remain relatively muted. However, multinational corporations are increasingly monetising Indian assets — via IPOs or stake sales — due to India’s superior market valuations.

 

Corporations are largely acquiring to fill white spaces and enter new categories. PE firms, especially in majority deals, are building scalable consumer platforms through bolt-on acquisitions, while minority investors typically back stable brands.

 

Blackstone has reportedly made a non-binding $1.2 billion offer for AkzoNobel India’s paint business. Pidilite, Indigo Paints, and JSW Group are also in the fray. Meanwhile, Reliance Industries is in talks to acquire a sizeable stake in Haier’s India operations.

 

Strong alignment between the target category and the acquirer’s core capabilities is critical.

 

Consumer categories poised for breakout growth are closely tied to India’s per capita GDP, currently between $2,500 and $3,000, said Swarup. “The categories that explode are discretionary ones with low ticket sizes.”

 

Anjana Sasidharan, partner and head of India, L Catterton, said the firm was backing categories aligned with long-term consumption trends — packaged food, health and wellness, beauty and personal care, and consumer platforms. “We’re agnostic to whether a business is direct-to-consumer or not. What matters is what the brand stands for,” she said.

 

While investor interest remains high, several structural and macroeconomic challenges persist. Dalal flagged governance and decision-making friction in promoter-led firms. “The quality of professional talent is often an issue, and PE entry can help attract and retain such talent,” he said.

 

On the ground, volume growth — a crucial metric — remains elusive. “There’s been inflation-led growth, but actual volume growth is still weak across most consumer segments,” said Gupta.

 

“A lot of growth is driven more by conversion from unorganised to organised sectors than pure demand,” he said. Capital market investments had temporarily diverted spending, but Gupta believes recent tax relief, yielding nearly ₹1 trillion in disposable income, may soon filter into consumption.

 

“All the favourable demographic hypotheses depend on people having meaningful jobs,” said Swarup.

 

Despite headwinds, investor appetite for scalable, profitable brands catering to Tier-II and -III markets remains strong.

 

“If valuations stay rational, deal activity should sustain — or even grow,” said Gupta. Funds like A91 Partners, Multipl, and ChrysCapital have raised fresh capital, providing “enough dry powder”.

 

“It’s undeniably an attractive sector,” said Swarup. “If you’re buying at a high multiple, you need to deliver growth well above what’s already priced in.”

 

Dalal added that the difficulty of building a brand and distribution in India justified high valuations. “Fast-moving consumer goods and consumer durables companies command much higher multiples,” he said. While multinationals lead the trend, Indian companies, too, trade at “much higher” valuations than the Nifty, which sits at 21x one-year forward earnings.

 

“Despite global geopolitical volatility, India’s consumer sector is reasonably insulated,” said Sasidharan. “Domestic demand is expected to rise as rural and urban incomes improve.” 

Deals in making

 

> Consumer, retail deals hit $5.7bn in Q1CY25, highest in 3 yrs

> Rationalised valuations revive private equity and M&A interest

> Tier II/III cities, premium demand driving next wave of growth

> PE firms prefer platform plays; corporates filling category gaps