India: Premium Products Outshine Mass Market in H1FY25

Chennai: While mass market consumption products grew by single digits in H1FY25, premium products saw double-digit growth. While rising disposable incomes in mid and upper-middle-income households supported consumption of premium products, stagnant real wages amidst inflation affected the spending of lower income households.

Most consumer-facing companies posted subdued revenue growth in 1HFY25. However, within discretionary segments, premium consumption has done better than mass-market segments.

In H1FY25, personal products, footwear, plastic products, restaurants, paints, tractors, real estate and entertainment in the mass market category saw a volume decline in view of the average revenue growth of below 7 per cent. Another five sectors including consumer food, retailing, domestic appliances, education sectors, textiles covering mass-market products also showed a tepid revenue growth rate in the band of 5 per cent to 10 per cent. Consumption was hindered by factors such as adverse weather, election uncertainty, stagnant real wages and elevated household leverage, finds India Ratings.

However, seven sectors representing premium products recorded a better performance. E-commerce, organised retailing, hotels and resorts, gems and jewellery and cigarettes-tobacco, and breweries and distillery products showed strong revenue growth in the range of 9 per cent -24 per cent, indicating volume growth.

The sustained consumption demand in the premium segment is being led by the income effect among mid- and upper-middle-income households, and long-term growth prospects are bolstered by rising disposable incomes and urbanisation. However, the premium segment also faces potential risks from inflation, high household leverage and the high base effect of post-COVID spending in FY23 and FY24.

India Ratings expects corporate India to pick-up in revenue growth over 2HFY25, driven by improved volumes and better ability to pass on increases in raw material prices. The confidence stems from the expectation of a continued recovery in the rural markets, led by agriculture, and plateauing of urban consumption after a decline in the first half. Sustainability of this beyond FY25 however would depend on an improvement in income levels across both rural and urban markets.