Top Conviction Ideas: Retail Sector - Q2FY26 Review by Axis Securities
Discretionary Witnessed Steady Performance
* Financial Performance
* Steady Performance: Most discretionary categories sustained double-digit revenue growth, though mass and mid-market footwear lagged amid early monsoons, geopolitical pressures, and intensifying unorganised competition. QSR demand remained resilient, while value retailers such as V-Mart and D-Mart outperformed. GST-related channel disruptions and prolonged rains weighed on the quarter, partially cushioned by an early festive season in September.
* Premium vs. Value segment: While the premium, luxury, and value segments remain strong, some pockets of urban consumption and footwear continue to face pressure.
* Store Expansion Continues: Despite the sluggish demand environment, most companies in our coverage have maintained or even increased their store opening guidance as they expand into smaller towns, supported by strong long-term growth levers.
* Most retail companies saw EBITDA margin expansion, driven by operational efficiencies, cost discipline, and backend optimisation.
What Makes the Retail Sector a Good Bet?
* Rapid Formalisation Underway: India’s retail landscape remains predominantly unorganised, offering substantial headroom for growth in smaller towns and emerging markets. As disposable incomes rise and demand gradually recovers—supported by income tax cuts, GST revisions, lower interest rates, and easing food inflation—consumer preference continues to shift decisively toward branded offerings.
* Smaller Cities Providing Huge Headroom: Smaller cities and towns are witnessing faster growth than metros across categories such as apparel, QSR, and footwear. This trend is driven by rising aspirations for branded products and increasing disposable income, further supporting overall growth.
* Structural Story to Continue ? Higher Disposable Income: India's average per-capita income stands at $2,200, and any increase in income is likely to translate into higher discretionary spending, as per-capita expenditure on essential goods remains largely constant. Furthermore, the recent revision on the GST rate reduction is expected to boost discretionary demand. ? Increased Participation of Women in the Workforce: Higher disposable income is driving increased sales in the women's wear segment.
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