BNP Paribas expects premium consumption to moderate as hiring and income growth slow

India's affluent consumption story remains intact, but the pace at which premium demand is expanding is likely to slow as hiring and income growth moderate, according to Kunal Vora, Head of India Equity Research at BNP Paribas.

Vora said the premium consumption cycle that gathered pace after the pandemic was supported by a strong job market, easy credit availability and rising equity markets. However, hiring in the IT and BFSI sectors has now slowed, government recruitment remains muted and credit growth has also eased.

Despite these headwinds, he does not expect the premium consumption story to reverse, citing income tax relief, RBI rate cuts, continued investment in global capability centres (GCCs), AI infrastructure and India's startup ecosystem as factors that could support demand going forward.

According to Vora, affluent consumers will continue to outpace the mass market, but the gap between the two segments is likely to narrow. He said slower job creation could reduce the pace at which new affluent households are created, while mass consumption is receiving support from lower inflation, GST rate cuts, gold loans and growth in the gig economy.

Vora also believes discretionary consumption will continue to grow faster than staples over the long term, even though consumer staples have recently reported stronger growth. He said part of the improvement in staples is temporary and linked to GST rate cuts, with growth likely to settle above historical levels rather than remain in double digits.

He added that premiumisation alone is unlikely to sustain growth for consumer staples companies, as they face increasing competition from direct-to-consumer brands, quick commerce and e-commerce platforms. At the same time, consumers are spending more on newer product categories, creating opportunities for discretionary businesses despite the moderation in affluent consumption.

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