Consumption would be the dark horse of calendar year 2025: Trideep Bhattacharya, CIO – Equities, Edelweiss MF

Consumption would be the dark horse of calendar year 2025. One of the sectors that has underperformed over the past three-five years is consumption; the valuations are reasonable now and the earnings appear to be bottoming out. For the medium term, there seems to be a decent place to accumulate consumption stocks from a cyclical point of view.

Also, the most noteworthy aspect of the Budget is its increased focus on consumption, which emerged as an unexpected, yet welcome, development. The government’s decision to allocate ₹1 lakh crore—equivalent to 0.3 per cent of GDP—directly into the hands of consumers is poised to provide a significant boost to domestic demand.

This will likely increase the urban middle-class income by 2-7 per cent in FY26. This measure is expected to drive increased spending, particularly in sectors such as retail, automobiles and consumer goods, thereby supporting broader economic expansion in 2025. By emphasising consumption alongside investment, the government is ensuring a more inclusive growth trajectory that benefits a wider cross-section of the economy.

Structurally, I think the consumption phase of India has been genuinely changing. If I may call it the roti, kapdaaurmakaan spending, the basic spending is also about capturing the changing consumption habits of India. Our spending, roughly about $2.4 trillion currently, is expected to grow about $4.2 trillion by 2030. This multifold change will be driven by multiple factors. Importantly, the new-age consumption. The way that the quick commerce is transforming the urban consumption is remarkable. The profit pools are shifting from traditional retail models to quick commerce, which is the big change for us to adapt and reflect in the stock markets.

Additionally, there has been a meaningful shift in consumption; while aspirational spending sub-sectors, such as hotels, have had growth in the mid double-digits, the basic items have shown a flat volume increase in recent years. Over the next five-ten years, there will probably be an increasing number of such significant changes in consumption.

Core, emerging and cyclical are the three areas of consumption. Both emerging consumption, which captures shifting consumption patterns and cyclical consumption, such as the recovery of building materials and rural consumption, can be used to generate alpha.

Hotels, hospitals, capital markets, these are extremely under-penetrated segments of India hence the structural component of this growth is meaningfully high. If you look at the penetration of hotels in India, they are hardly present beyond the top 4 cities and they command scarcity premium at certain points. Though they have a cyclical component, the structural component is far too strong. The same is true for hospitals as many brands are gaining trust among the people.

Importantly, I would like to highlight the changing phase of consumption of India. You wouldn’t have heard of 10-minute grocery delivery apps or instant commerce platforms a few years ago, but how many people haven’t used these platforms lately, especially in cities? It shows how quickly consumption is changing. With changing habits, a good part of the alpha kicker will happen in consumption in the next three-five years.

Auto is a bunch of many segments: two-wheelers, four-wheelers, CVs and MHCVs. Of these, two-wheelers are doing comparatively well, because of electric penetration and the fact that they are coming from a very cyclically-low base.

For PVs, it is more a function of high base that they are coming from and also the fact that if there is an urban slowdown then they will also see a bit of a slowdown coming through. However, I do see it coming; growth rates will somewhat rebound, but they will probably never reach double-digits. The delta with regards to what happens as a result of higher government spending and if capex spend happens will actually be seen in CVs and MHCVs and on the rural side on tractors.

Within auto, we are positive on tractors where we think a meaningful amount of double-digit growth probably lies in front of us.

We are positive on IT; it has done well in 2024 and has stacked up reasonably well even now, particularly under the Trump regime, looking to make America great again. We might see a few hiccups in the first quarter of this year. But if you look at one-two-year perspective, then IT will actually see more earnings upgrade under the Trump regime.

DeepSeek actually has democratised AI that the IT services opportunity is just about being opened up. So, earlier when the profit pool was linked to Open AI or Microsoft or a few bunch of companies who were running that software, now by making it open source, the IT services companies can write codes and customise to any organisation. It would mean a meaningful growth opportunity for Indian IT services from here.

Let’s us get the facts right. The capacity utilisation of India Inc is currently at 79 per cent and the capex cycle generally starts once you reach the capacity utilisation closer to 80 per cent. Then, why is private sector capex cycle not starting? Beginning of 2024 till now has been a very election-heavy year, as more than 50 per cent of the top 20 nations have had elections. Either a change in government or a change in the style of government has occurred. Thus, the macro narrative has dominated all of this, and not much practical work has been done on the ground.

Given the relatively-high capacity utilisation, it is a suitable place to start private sector capital expenditures if you have clear policies. Additionally, it will genuinely benefit if rate cuts are anticipated.