Brokerage Prefers Titan, Trent and Value Retail Plays Amid Slowing Growth and Margin Risks

India’s consumer discretionary sector may be entering a more volatile phase as slowing demand, rising raw material costs and tighter financial conditions begin reshaping the outlook for retail, fashion, footwear and quick service restaurant (QSR) companies.

According to a recent report by Ambit Institutional Equities, India’s earlier “Goldilocks” economic phase — marked by healthy consumption growth, easing inflation and strong discretionary spending — appears to be fading. The brokerage expects FY2026–27 to bring a more difficult operating environment for discretionary companies, with growth moderation and margin compression emerging as key concerns.

Against this backdrop, Ambit has become increasingly selective within the sector, favouring companies with stronger balance sheets, better pricing power, superior execution capabilities and resilient demand drivers.

The brokerage currently prefers large-cap names such as Titan Company and Trent over QSR chains and several small- and mid-cap discretionary businesses.

India’s Consumption Cycle Diverges From Global Trends

Ambit’s report highlighted that India’s discretionary consumption patterns differ significantly from global markets during periods of economic slowdown.

Globally, QSR businesses and affordable food chains often perform relatively well during weak economic cycles because consumers trade down from premium dining options. However, Ambit noted that this trend does not fully apply to India due to the country’s strong home-cooking culture and lower household cooking costs.

As a result, Indian QSR companies may struggle to benefit from the same defensive consumption behaviour seen in developed markets.

In contrast, sectors such as jewellery and value retail continue to demonstrate stronger resilience in India.

Why Jewellery Continues to Remain Resilient

According to Ambit, jewellery demand in India enjoys structural support that remains largely absent in many global markets.

The brokerage believes jewellery companies continue to benefit from:

• Strong wedding-related demand
• Cultural preference for gold ownership
• Gold’s role as a long-term savings instrument
• Rising organised retail penetration

This makes companies like Titan Company relatively better positioned during consumption slowdowns compared to many other discretionary categories.

Titan’s jewellery business, led by the Tanishq brand, continues to remain one of the strongest consumption stories in India’s organised retail sector.

Trent and Value Retailers Seen as Structural Winners

Ambit also remains positive on value-focused and value-for-money retail formats, which historically outperform during periods of weaker discretionary demand.

The brokerage believes retailers such as Trent and Vishal Mega Mart are better equipped to navigate near-term pressures due to their scale advantages and aggressive market-share expansion strategies.

According to the report, these growth-led retailers are likely to absorb short-term margin pressure instead of immediately passing higher costs to consumers.

This approach may temporarily impact profitability but could help them strengthen market positioning during slower economic conditions.

Crude-Linked Inflation Emerging as Major Risk

One of the biggest concerns highlighted by Ambit is rising crude-linked raw material inflation, which is expected to affect companies unevenly across the discretionary universe.

The brokerage said margin outcomes will largely depend on:

• Pricing power
• Operating leverage
• Brand strength
• Balance sheet quality
• Ability to absorb cost inflation

Companies with weaker profitability and limited pricing flexibility may face greater pressure in FY2027.

Margin-Sensitive Companies May Face Volume Pressure

Ambit warned that companies operating with tighter margins may be forced to implement early price hikes to protect profitability.

However, higher prices could impact consumer demand and lead to volume weakness.

The brokerage identified companies such as:

• Aditya Birla Fashion and Retail
• V-Mart Retail
• Relaxo Footwears

as potentially more vulnerable to margin pressure and demand slowdown risks.

Premium Brands Better Positioned to Pass Costs

Ambit believes premium-positioned consumer brands are likely to handle inflationary pressures more effectively due to stronger pricing power and brand loyalty.

The brokerage highlighted:

• Metro Brands
• Page Industries
• Aditya Birla Lifestyle Brands

as companies that may be able to pass on higher input costs without significantly hurting demand.

Premium consumers generally tend to be less sensitive to moderate price increases, helping these companies protect margins more efficiently.

Nykaa and Lenskart Continue to Stand Out

Ambit also remains constructive on newer-age consumption and digital retail businesses operating in rapidly growing categories.

The brokerage expects companies like:

• Nykaa
• Lenskart

to continue delivering strong growth momentum despite broader sectoral challenges.

According to the report, Nykaa’s marketplace model provides relative insulation from gross margin pressures, while Lenskart’s increasing focus on in-house manufacturing helps offset rising raw material costs.

QSR Companies Face Weakening Outlook

The brokerage has become more cautious on the quick service restaurant segment due to slowing discretionary spending trends and weaker operating leverage.

Ambit reduced target prices for major QSR companies including:

• Jubilant FoodWorks
• Devyani International
• Sapphire Foods India

by nearly 15–17 per cent amid concerns over slower growth and pressure on margins.

The report noted that unlike developed markets, Indian consumers may increasingly prefer home-cooked meals during periods of economic uncertainty, limiting QSR resilience.

Preference Shifts Toward Large-Cap Consumption Plays

Ambit’s broader investment strategy currently favours large-cap discretionary companies over small- and mid-cap names.

The brokerage’s multi-factor framework suggests that during economic slowdown phases, companies exhibiting:

• Lower volatility
• Strong balance sheets
• Higher quality metrics
• Financial stability

tend to outperform broader markets.

Based on this framework, Ambit has maintained a positive stance on:

• Titan Company
• Trent
• Nykaa
• Metro Brands
• Campus Activewear
• V-Mart Retail

At the same time, it remains cautious on several small- and mid-cap discretionary businesses facing profitability and growth challenges.

FY2027 Could Be a Crucial Year for Consumer Stocks

While Q4FY26 earnings have shown some improvement compared to earlier quarters, Ambit expects FY2027 to remain challenging due to:

• Slower discretionary demand
• Elevated crude-linked inflation
• Margin pressures
• Weak consumer sentiment in select segments

However, select companies with strong execution, differentiated business models and structural growth drivers could continue outperforming the broader consumption sector.

The brokerage believes investors may increasingly focus on quality, resilience and pricing power as the discretionary sector enters a more selective and competitive phase.