Jefferies has turned bullish on India's consumer and internet sectors, expecting the consumption cycle to reach its bottom after a challenging 2025. The global brokerage anticipates better times ahead, driven by easing inflation, tax cuts, favorable low base effects, and margin expansion opportunities across key consumer categories.

Staples Sector Poised for Recovery

The staples segment faced significant headwinds in 2025, with muted volume growth despite operating from a low base. Companies grappled with margin pressures from input cost inflation and volatility, while urban demand continued to lag rural performance. The rollout of GST 2.00 created short-term channel disruptions, leading to de-stocking and delayed consumer purchases. Unseasonal rains further impacted summer categories during the year.

Jefferies expects 2026 to mark a turnaround as channel issues stabilize and companies benefit from easing inflation, tax cuts, and the low base across several categories.

Mixed Performance in Discretionary and Retail

The discretionary and retail space showed clear divergence during 2025. High gold prices weakened jewelry demand, impacting buyer growth for Titan, though Jefferies noted the company managed the situation effectively. Value retailer Vishal Mega Mart reported strong revenue growth driven by rapid store additions and resilient demand in tier-2+ cities, while DMart and Trent experienced moderation.

Quick-service restaurants faced severe same-store sales growth pressures, with Jubilant FoodWorks being the notable exception due to self-help measures. However, the industry has yet to see meaningful recovery. Asian Paints staged a strong comeback, with Jefferies expecting volume momentum to sustain despite elevated competition.

Internet Sector Remains Bright Spot

The internet sector continued as one of the strongest performers, with quick commerce maintaining explosive growth led by Blinkit in both scale and profitability. Swiggy also demonstrated strong growth, though losses remain significant, with rising competitive intensity flagged as a key risk.

GST 2.00 Implementation Drives Structural Change

A key macro factor has been the implementation of GST 2.00 on September 22, 2025, which reduced tax rates across several consumer categories. Products previously taxed at 18% including toothpaste, hair oil, shampoo, soaps, biscuits, and chocolates moved to 5%. Items earlier at 12% such as condensed milk, instant noodles, cheese, and dried fruits also shifted to 5%.

Most staples companies experienced portfolio-wide tax reductions and passed benefits through higher grammage in small packs and price cuts in larger ones. Jefferies argues this will increase disposable income and bolster demand across consumer categories, with visible benefits likely emerging from December 2025 onwards.

Top Stock Picks for 12-Month View

Jefferies' selective stock picks reflect optimism across segments:

Internet: Eternal remains compelling after a nearly 20% correction from peak, offering an attractive entry point.

Discretionary: Asian Paints expected to sustain volume growth momentum alongside industry recovery. Vishal Mega Mart positioned as a value retail play driven by strong same-store sales and store additions.

Staples: Britannia viewed as a key beneficiary of GST cuts with strong expected volume growth. Godrej Consumer Products expected to benefit from low base and input price corrections. Marico projected to maintain base business momentum and gain share in higher-growth portfolios with margin gains from softer inputs.

QSR: Jubilant FoodWorks expected to see EBITDA growth driven by margin expansion even as same-store sales moderate on a normalizing base.

The brokerage views Honasa as high-risk, high-reward, while considering Nykaa and Lenskart as compounders for long-term growth.

India's travel sector is poised for stabilization in 2026 after navigating significant challenges throughout 2025, according to Jefferies' latest sector outlook. The brokerage has positioned airports as the clear winners, followed by airlines and hotels, based on earnings visibility and operational resilience.

Sector Challenges Define 2025 Performance

The travel industry faced multiple headwinds in 2025 despite a strong start to the year. Key disruptions included a fatal Air India crash in June, escalated geopolitical tensions between India and Pakistan, an extended monsoon season, and a year-end scheduling crisis at IndiGo. These factors collectively dampened travel sentiment, forced capacity reductions, and weighed heavily on sector stock performance.

The impact was evident in operational metrics, with air passenger growth decelerating sharply to just 1.00% year-on-year in the first half of FY26, including further slowdown in December. Hotel performance similarly moderated, with RevPAR growth easing to 6.00-7.00% in the September quarter, a significant decline from mid-teen growth rates recorded over the previous four quarters.

Airports Lead Recovery with Strong Fundamentals

Jefferies maintains its most optimistic outlook for the airport sector, citing multiple growth drivers that position these assets favorably for 2026. The key factors supporting airport outperformance include:

GMR Airports emerges as a standout performer within the airport category. Per-passenger spending continues scaling up at both Delhi and Hyderabad facilities, while progress in airport-adjacent real estate projects provides an additional earnings catalyst. Jefferies projects an impressive EBITDA CAGR of approximately 28.00% for GMR Airports over FY25-28, with regulatory clarity offering potential upside to these estimates.

Airlines Navigate Structural Industry Reset

The airline sector enters 2026 amid what Jefferies characterizes as a fundamental structural transformation. Revised flight duty norms, persistent pilot shortages, and intensified regulatory oversight have shifted industry priorities from aggressive capacity expansion toward operational stability and safety compliance.

Rising operational costs driven by rupee weakness and higher crew expenses are pushing airlines to implement strategic changes:

• Enhanced yield management practices
• Expanded ancillary revenue streams
• Greater focus on premium cabin offerings
• Accelerated international route development

IndiGo's upcoming Airbus A321XLR aircraft induction is expected to bolster its international expansion capabilities, while the airline's FY27 available seat kilometer guidance remains a critical factor for sector estimates. Jefferies anticipates capacity constraints will ease gradually through calendar year 2026, though demand-supply dynamics should remain balanced, supporting a favorable pricing environment.

Hotels Face Growth Moderation After Strong Run

The hotel sector is projected to experience measured growth following four consecutive years of robust post-Covid recovery. While underlying demand drivers remain intact, a high comparison base and improving supply pipeline are expected to moderate growth trajectories.

Jefferies forecasts RevPAR CAGR of 7.00-8.00% over FY25-28, translating to EBITDA growth of 13.00-16.00% for the period. Among hotel operators, Indian Hotels is positioned favorably due to its diversified revenue streams and more cycle-resilient portfolio composition.

Investment Hierarchy for 2026

Jefferies' clear investment preference ranking reflects where the brokerage sees the strongest combination of earnings visibility and operational resilience. Airports top the list based on their defensive characteristics and multiple growth catalysts, while airlines benefit from structural improvements despite near-term challenges. Hotels, while maintaining positive fundamentals, face the most significant growth deceleration among the three segments after their exceptional post-pandemic performance.