India's urban demand slowdown is expected to persist for the next few months, with recovery likely to begin in the second quarter of the financial year 2026, according to a report by Nuvama.
The current slowdown is influenced by factors such as high rental inflation and stagnant wage growth, which have impacted consumer spending patterns in urban areas.
The report highlights that fiscal measures introduced in the union budget and an expected interest rate cut by the Reserve Bank of India (RBI) will play a crucial role in reviving demand.
As these measures take effect, urban consumption is expected to gradually improve, providing relief to businesses that have been experiencing sluggish sales.
One of the key steps taken to boost consumer spending is the increase in the tax exemption limit to ₹12 lakh, which will inject liquidity into the economy.
Additionally, a potential reduction in interest rates by the RBI is likely to lower borrowing costs, making it easier for individuals to spend on housing and other big-ticket purchases.
The report also points out that food inflation, which has been a major concern in recent months, has started to ease in certain regions. This decline is expected to improve household budgets, further supporting a revival in urban demand.
As inflationary pressures ease and tax relief measures come into effect, urban markets are likely to witness increased consumer activity.
While urban demand remains under pressure, the rural market has shown stronger growth in the overall fast-moving consumer goods (FMCG) sector. Rural areas have benefited from government subsidies, favourable monsoon conditions, and an increase in disposable income, which has boosted spending.
Companies with a significant presence in rural markets, such as Dabur and Berger Paints, are expected to perform better than those primarily focused on urban consumers.
The report suggests that businesses catering to rural areas will continue to experience steady revenue growth in the coming quarters.
Despite the challenges faced by urban markets, the FMCG sector is gradually recovering. Many consumer-facing companies have reported stable revenue growth driven by an increase in sales volumes, product innovations, and expanded distribution networks.
These factors have helped offset some of the negative effects of the urban slowdown.
The report further mentions that pricing growth for FMCG companies is expected to improve in the near future. Companies have been dealing with inflationary pressures on essential raw materials such as palm oil, coffee, and tea.
However, as input costs stabilise, businesses are likely to benefit from better pricing power, which will contribute to overall revenue growth.
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