Urban demand to pick up from Q2FY26; slowdown to continue till July 2025: Nuvama
Feb 19, 2025
New Delhi [India], February 19 : The ongoing urban slowdown will continue until the first quarter of the Financial Year (FY) 2026, with a revival anticipated to begin in Q2FY26, according to a report by Nuvama.
The report highlighted that the sluggish urban demand, which is currently impacted by high rental inflation and stagnant wage growth, will show signs of improvement as fiscal measures taken in the union budget and rate cut by the Reserve Bank of India (RBI) effect.
"In our view, urban demand will start improving from Q2FY26," the report added.
Key factors contributing to the urban slowdown include high rental inflation, slow wage growth, and overall economic pressures.
However, the report says that the situation will improve gradually with the impact of the fiscal measures announced in the union budget and tax cut by RBI effect is shown on the ground.
Budget measures like raising the tax exemption limit to Rs 12 lakh will infuse liquidity in the system and rate cut by the RBI will ease pressure on urban consumption, the report says.
In addition, it adds that food inflation, which had been a major concern, has started cooling off in some parts, which will add to the optimism for a recovery in urban demand.
The report adds that the easing of inflationary pressures combined with tax cuts in the union budget and rate cut by RBI will push consumer spending in urban markets starting in the middle of FY26.
Going further, the report adds that in the overall FMCG sector, rural markets continue to outpace urban areas due to increased distribution of freebies and favourable sentiment due to a good monsoon.
As rural markets show stronger growth, companies with a higher rural presence, such as Dabur and Berger Paints, are anticipated to outperform those with a stronger urban presence.
Nuvama predicts that, in the long run, these rural-focused players will continue to see robust revenue growth, outpacing their urban-centric counterparts.
As per the report, despite the challenges faced by urban markets, the FMCG sector is experiencing a gradual recovery, with overall revenue growth for most consumer-facing companies attributed to volume increases, product innovation, and expanded distribution channels.
It further added that the pricing growth for most companies is expected to improve over the coming quarters, as they continue to navigate through inflationary pressures on key raw materials like palm oil, coffee, and tea.
