India’s $40 Billion Consumption Boom: A Guide for Investors

India’s current discretionary spending is around $250 billion, as per HSBC’s analysis. (AI image)

India is on the brink of a significant consumption boom. This surge could add $30–40 billion to the economy annually. Such a rise in consumer spending is poised to transform India’s economic landscape. This change is expected within the next 18 to 24 months, presenting a golden opportunity for stock market investors.

Why This Boom Matters

India’s vast population of 1.5 billion people will have more money to spend due to several factors:

• Income tax reductions
• Salary hikes
• Lower borrowing costs, thanks to a 1% repo rate cut by the RBI

HSBC Securities predicts that discretionary spending could increase by $30-40 billion each year. Here’s why:

• Tax cuts for individuals could save them $12 billion.
• The 8th Pay Commission might increase salaries by 15%, potentially giving government workers an extra $18-26 billion.
• Lower interest rates could reduce mortgage payments by $3-4 billion.

Current Spending and Future Growth

Currently, India’s discretionary spending is about $250 billion. The new stimulus could boost spending power by 15%. This means more money in people’s hands. Some may save or invest this extra money, but most will likely spend it.

Rahul Bajoria from BofA Securities notes that India’s consumption is improving due to:

• Controlled inflation
• Early monetary easing
• Lower commodity prices

Even though private consumption growth has slowed with GDP, Bajoria believes consumption will soon outpace GDP growth. This is because:

• Household incomes are stabilizing
• Tax burdens are lower
• Credit is more accessible

Policy Changes and Their Impact

Monetary policy changes include:

• Rate cuts of 100 basis points
• Liquidity boost of over Rs 12 lakh crore
• Relaxed rules for NBFCs and MFIs on risk weights

These changes are expected to boost urban demand. Personal credit growth, which was previously a concern, is likely to improve in the coming quarters.

Investment Opportunities

Consumer Sectors

Kunal Vora from BNP Paribas sees opportunities in consumer sectors, especially in food delivery and quick commerce. Swiggy and Eternal are expected to benefit the most. They could generate significant cash flow and play a larger role in India’s $1 trillion retail market.

Spending Patterns

Yogesh Aggarwal from HSBC observes that Indian consumers are spending more on:

• Vehicles
• Consumer goods
• Electronics
• Eating out

This spending growth is happening across various product categories and income levels.

Valuations and Market Trends

Nomura reports that consumer stocks have corrected significantly in the past six months. They are now trading below their five-year averages. Government efforts to boost demand through fiscal and monetary measures are yielding positive results.

Nomura expects lower inflation and GDP growth, along with tax cuts in FY26, to help volumes recover and improve margins. They favor GCPL, Marico, and Tata Consumer due to their strong pricing, premium products, innovation, and brand value.

Rural Consumption Revival

Rural consumption is picking up. Incred Equities notes a 3.3% rise in rural consumer confidence in May 2025. This is due to:

• Good rabi crop yields
• Early monsoon
• Positive kharif season outlook
• Lower fuel costs
• RBI’s interest rate cuts

These factors have aligned urban and rural consumer sentiment.

Expert Insights

Trideep Bhattacharya from Edelweiss Mutual Fund sees favorable conditions emerging. With lower inflation, better liquidity, and budget provisions giving urban consumers a 5-7% income boost, he expects a significant shift in consumption in the latter half of the year. He considers it a surprising performer of 2025.

His fund launched a consumption-focused strategy earlier this year. While essential goods have underperformed due to mass-market demand issues, discretionary segments are showing signs of recovery.

Conclusion

For investors, the key is not just the expected $40 billion consumption growth but their readiness to benefit from it. Economic indicators are positive, liquidity conditions are good, and growth prospects look sustainable. The last time such factors aligned, Indian consumption stocks delivered high returns. This could happen again.