16 Jul 2025
India’s consumption sector is undergoing a major shift, supported by rising incomes, favourable demographics, and changing consumer preferences. With consumption accounting for nearly 60% of India’s GDP (1), it presents a significant long-term investment opportunity.
India is now the fifth-largest consumption market globally and the fastest growing, with a 10-year consumption CAGR of 7.2% (1). While India’s per capita consumption remains below that of developed nations, it is where China was in 2010, highlighting strong potential for catch-up growth (2).
A large, young workforce is propelling this momentum. India adds 12 million people to the working-age population annually, with 68% of the population already in this bracket (3). Gen Z alone makes up 377 million individuals and is shaping consumption patterns with a preference for digital, premium, and experience-driven products (4).
There’s also considerable room for penetration-led growth. For example, India’s per capita alcohol and paint consumption is less than half of that in developed markets (5). As urbanisation deepens and aspirations rise, categories like home improvement, personal care, and discretionary spending are expected to grow substantially.
Premiumization is another key theme. Consumers are upgrading from detergent powders to liquids, CFLs to LEDs, and feature phones to smartphones. Retail is also undergoing formalisation: the organised jewellery market is expected to touch 40% share by 2025, while organised consumer durables may reach 70% by 2027 (6).
While macro headwinds like high inflation and interest rates (7) weighed on consumer sentiment in recent years, green shoots are emerging. CPI inflation is now at a six-year low (8), and input costs such as crude oil and palm oil have softened (9). Tax relief in the FY26 Budget (10) and state welfare spending of approx. ₹3.1 trillion (11) is also boosting disposable incomes.
The rural economy is showing signs of recovery. A better monsoon forecast and improving crop output in CY25 (12) are expected to support rural demand. Meanwhile, Direct-to-Consumer (D2C) brands and Quick Commerce platforms are redefining how and what consumers buy (13).
At Kotak Mutual Fund, we believe India’s consumption story is a multi-decade opportunity. Our Kotak Consumption Fund is designed to capture this growth by investing in businesses aligned with structural consumer trends.
With valuations currently near long-term averages (14), this could be an opportune moment for long-term investors to participate in India’s evolving consumption journey.
Sources:
(1) UBS, Latest available data.
(2) World Bank, Latest available data.
(3) News 18 | Worldpopulationreview.com | Population Data as of Jul-23 | Working Population Growth- hindutsantimes.com, Latest available data.
(4) BCG report, Data as of Oct-24, Latest available data.
(5) Ambit Capital, HUL, Latest available data.
(6) Kalyan Jewellers AR 2023 | Spencer's Annual Presentation 2021 | Electronics Mart DRHP (Oct-22), Latest available data.
(7) CEIC, RBI, Latest available data.
(8) CEIC, Latest available data.
(9) Bloomberg, Latest available data.
(10) FY26 Budget, Income tax department, KMAMC research, Data as of Apr-25.
(11) News article, Avendus Spark, Latest available data.
(12) IMD, CEIC, Latest available data.
(13) Inc42 Media, Data as of Apr-25 | BNP Paribas, Data as of 31-Mar-25.
(14) Bloomberg; Ambit Capital, Latest available data.
The article includes statements/opinions which contain words or phrases such as "will", "believe", "expect" and similar expressions or variations of such expressions, that are forward-looking statements. Actual results may differ materially from those suggested by the forward looking statements due to risk or uncertainties associated with the statements mentioned with respect to but not limited to exposure to market risks, general and exposure to market risks, general economic and political conditions in India and other countries globally, which may have an impact on our services and/or investments, the monetary and interest policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices etc.
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