BNP Paribas' recent analysis suggests that while AI could slow affluent consumption in India, it is unlikely to stall it completely. The report highlights potential stress in discretionary categories such as quick-service restaurants (QSRs) and credit cards, driven by slowing wage growth and moderated equity returns.
The report from BNP Paribas indicates a deceleration in income growth for NSE500 companies, with salary expenses rising by approximately 7% in FY25 and FY26 compared to 14-15% over FY22-24. Personal loans also saw a softer increase of 13% in the same period. Additionally, equity returns have moderated, impacting consumer spending.
Despite these challenges, positive trends in affluent spending have been observed, supported by policy actions like GST and income tax rate cuts. The implementation of the eighth pay commission and investments in data centre infrastructure are expected to provide further stimulus.
Risks to the view that AI could slow rather than stall affluent consumption include a higher-than-expected impact of AI on white-collar jobs and its subsequent effect on the economy. Early signs of AI impact are being monitored through hiring trends in sectors like IT and BFSI.
At a sectoral level, companies relying on entry-level employees face larger risks compared to those dependent on experienced, high-income employees. The early signs of stress are expected in entry-level discretionary categories such as QSRs and credit cards.
Background
In previous years, Affluent India experienced strong growth in wages, rising access to credit, and buoyant equity markets, driving a luxury boom post-pandemic. However, recent data for FY25 and FY26 shows a deceleration in these trends.
Looking forward, BNP Paribas anticipates the Nifty 50 reaching 25,500 by December 2026, driven primarily by earnings growth. A decisive return of foreign institutional capital will likely require clearer earnings revival and a more predictable outlook for oil prices.
