Consumer discretionary churn: Why Ambit likes Titan, Trent over QSR, SMIDs

India’s Goldilocks macroeconomic phase appears to be over, with discretionary consumption in FY27 likely to face the dual challenge of slowing demand and margin compression. 

According to a recent report by Ambit Institutional Equities, India’s resilience hierarchy is diverging from global trends. Historically, in India, value and value-for-money retail formats, as well as jewellery players, have historically outperformed, while quick service restaurants (QSRs) and mid-premium segments have tended to lag during periods of slowdown.

India vs global discretionary cycles: value, jewellery lead

According to Ambit, benchmarking discretionary cycles across the US, China, South Korea, and ASEAN markets shows a clear global slowdown hierarchy, where QSR holds best, followed by beauty and personal care (BPC) in developed markets and apparel in emerging regions. However, India presents a notably different pattern. 

 

QSRs in India do not benefit from the same 'trade-down' effect seen globally due to the home-cooking cost advantage. In contrast, jewellery remains resilient, supported by wedding demand and gold’s savings role, providing a cultural floor absent globally. Value and value-for-money retail also mirror global resilience trends. It expects players operating in newer channels and growing categories like Nykaa and Lenskart to continue delivering accelerated growth. 

Raw material inflation hits all, but impact differs

In its report, Ambit said crude-linked RM inflation is expected to impact companies unevenly, with margin outcomes depending on pricing strategy, balance sheet strength, and operating leverage. 

The brokerage noted that growth-led players such as Trent and Vishal Mega Mart are likely to absorb near-term gross margin (GM) pressure, using scale to gain market share. However, margin-sensitive companies, including Aditya Birla Fashion, V-Mart Retail, and Relaxo Footwears, are likely to go for early price hikes, risking volume loss. 

Premium-positioned brands such as Metro Brands, Page Industries, and Aditya Birla Lifestyle are seen as better placed to pass on higher costs without significant demand erosion. 

The report added that third-party retailers like DMart and Nykaa remain relatively insulated in gross margin terms, while Lenskart's rising in-house manufacturing offsets RM pressure. Honasa Consumer is likely to take price hikes, whereas Brainbees Solutions (FirstCry), given weaker profitability, has limited room to absorb cost pressures without passing them on.

Titan, Trent, Nykaa among key factor-based picks

Ambit said the Indian economy is expected to enter a “slowdown” phase by March-June 2026, based on OECD CLI and repo–CPI indicators. Its multi-factor framework suggests that during such periods, low volatility, quality, and financial strength factors tend to outperform, while value, profitability, and dividend yield underperform. 

Based on this approach, Ambit suggests 'Buy' on Titan Company, Trent, V-Mart Retail, Nykaa, Metro Brands, and Campus Activewear. It flagged DMart, Page Industries, and Urban Company as 'Sell', while small-cap exposure, including Aditya Birla Fashion and Retail, is largely avoided.

Prefer large-caps over SMIDs amid selective outlook

The brokerage maintained a preference for large-cap names over SMIDs, becoming more selective in its approach. While Q4FY26 results so far indicate a recovery in growth versus Q3FY26, FY27 is expected to face headwinds from crude-linked inflation and slower growth, except for base-effect beneficiaries such as Trent, Metro Brands, Honasa Consumer, and Campus Activewear. 

The report added that target prices for QSR companies, including Jubilant FoodWorks, Devyani International, Sapphire Foods India, have been cut by 15-17 per cent, while estimates for Aditya Birla Fashion and ABLBL have been reduced by 25 per cent due to weaker revenue and margin outlook, along with a 50 bps increase in cost of equity reflecting continued delays in profitability.  =========================================  Disclaimer: View and outlook shared belong to the respective brokerages/analysts and are not endorsed by Business Standard. Readers' discretion is advised.