“Well, you are clearly seeing revival of consumption at least anecdotally when we look at the initial numbers,” Raheja said. “One of the largest consumer FMCG companies declared numbers just day before yesterday and the commentary was very positive. This is a company that caters to everything from children’s products to pet care. It is heartening to see consumption growing because at 58% of GDP, domestic consumption is what moves the needle for India.”
Raheja noted that the government’s push through tax measures and interest rate support is now bearing fruit. “Post-COVID we had a K-shaped recovery — the upper K was doing well, the bottom K was struggling. The government has put all its might behind boosting the lower end, and that’s showing results,” he added.
Staples vs Discretionary: The Rural Revival Factor
While the FMCG sector’s early signs are encouraging, questions remain about whether the recovery is sustainable — particularly for staples, which have been lagging. Raheja pointed out that rural sentiment is critical: “We are seeing a rural recovery and almost 50% of staples is today rural. So, if rural recovers, staples should see a sentimental improvement. Sentiment plays a very big role in consumption. You’re right — we’re not expecting great things in staples, but even small improvements will help.”
Valuations Stretch, Discretionary Takes the Lead
The debate around valuations in consumer stocks remains intense. FMCG names continue to command rich premiums even though earnings growth has been modest. “I don’t think you can rationalize it from a valuation perspective,” Raheja said. “Staples were once seen as long-term, cash-flow-rich businesses — almost like investing in a bond with growth. But now the market has broadened. Staples are no longer playing the role of defensives they were known for. Except for a few select names, you really can’t justify valuations given the kind of growth we’ve seen.” He believes the better play lies in the discretionary side of consumption. “You play it through consumer discretionary… through premiumization of consumption,” he noted.
Autos Ride the Consumption Tailwind
Autos have been among the most visible beneficiaries of GST and the broader consumption upcycle.
“When you see GST coming down from 28 to 18 and the kind of cuts that were made in pricing, it is very welcome to stimulate demand,” Raheja said. “This should really help the bottom end of autos. But over the longer term, autos are all about models — the model refresh that happens. The leaders today are those with contemporary models, who have grabbed market share. That’s the big differentiator.”
He pointed out that even within two-wheelers, a valuation gap persists between premium and entry-level players. “Companies selling premium two-wheelers have been able to deliver growth through different cycles, hence the premium valuations. The model refresh cycle is very interesting to watch,” he added.
New Profit Pools Emerging in Consumer Space
The post-GST transition has accelerated the shift from unorganized to organized markets, reshaping profit pools across consumer sectors.
“There’s been a lot of movement post-GST towards the organized segment, so the profit pool for organized players is growing,” Raheja said. “Technology disruption and AI are driving efficiency — the middleman is getting squeezed. Companies using technology effectively are delivering faster and more competitively, gaining market share.”
He emphasized how India’s pace of innovation has outstripped many Western economies. “I have relatives who’ve come from Europe, and they’re stupefied to see how fast commerce works here. Even at midnight, deliveries arrive within 10 minutes. Innovation is driving this, and these companies will keep growing their share.”
Valuations Built on Future Promise
However, Raheja cautioned that valuations in these new-age consumer businesses are based more on belief than traditional metrics.
“If you go by traditional valuation metrics, you’ll find it difficult to justify,” he said. “You have to believe in the business model and its ability to scale over the next five years. These are winner-takes-all businesses — the profit pool jumps once dominance is achieved. So currently, you are paying for execution skills, not for current profitability.”
Bottom Line:As India moves into the next phase of GST reforms, the early signs of a consumption recovery are encouraging. But investors may need to be selective — focusing on premiumization, discretionary demand, and technology-driven disruptors rather than relying solely on traditional defensives.
