India's apparel sector to see 16% growth in Q1FY26, led by value: HDFC Securities

India's consumer discretionary sector will see mixed performance in the first quarter of fiscal year 2026 (Q1FY26), with overall revenue projected to grow almost 18 per cent year-on-year (YoY). However, this growth is largely due to a few standout performers, while many segments continue to grapple with weak demand and margin pressures, says a recent "Q1FY26 Results Preview" report by HDFC Securities. The report this month highlights while new-age businesses are experiencing good expansion, traditional sectors like paints are facing headwinds.

Apparel Sector: Value retail leads, premium lags

Within the broader discretionary space, the fashion and apparel sector revealed some interesting trends. HDFC Securities forecasts a 16 per cent YoY revenue growth for the apparel segment in Q1FY26. This growth is predominantly due to the consistent performance of value retail.

Despite this, the sector is not without its challenges. Same-store sales growth (SSSG) remains weak across most discretionary categories, often ranging from negative to lower single-digits. For apparel, SSSG was particularly impacted by the timing of Eid and certain sourcing disruptions during the quarter.

Table: Highlights from HDFC Securities Q1FY26 Outlook

The report anticipates continued margin pressure across the discretionary universe, with overall margins expected to contract by approximately 80 basis points (bps) YoY to 9.6 per cent in Q1FY26. This is primarily attributed to weak SSSG and elevated expenses from quick commerce (QC) operations. However, the apparel sector is projected to see a slight improvement in margins, around 55bps YoY, albeit on a low base from the previous year. This suggests that while top-line growth is present, profitability remains a tightrope walk for many players.

A mixed scenario for fashion retailers

Trent: A prominent player in value fashion, Trent continues its steady growth, though its growth momentum has shown signs of moderating. The company is estimated to achieve 20.1 per cent YoY revenue growth in Q1FY26.

V-MART Retail: The value retailer showed strong performance, with reported revenue growth of 13.4 per cent YoY in Q1FY26. Its SSSG stood at 1 per cent for the quarter, which normalizes to a healthier 5 per cent when adjusted for the early Eid festival. V-Mart continued its expansion strategy, adding 15 new stores in Q1, bringing its total store count to 510.

Nykaa (FSN E-Commerce Ventures): As a new-age business with a strong fashion component, Nykaa is expected to maintain strong YoY growth. HDFC Securities projects 24.1 per cent YoY revenue growth for Nykaa in Q1FY26, with its Beauty & Personal Care (BPC) and Fashion segments clocking approximately 27 per cent and 25 per cent YoY growth in Gross Merchandise Value (GMV), respectively. This indicates continued consumer acquisition and engagement in the online fashion space.

Shoppers Stop: The outlook for Shoppers Stop is rated as "Average," with expected revenue growth of 5 per cent YoY in Q1. The report highlights flat gross margins and a slight reduction in pre-IND AS EBITDAM.

Metro Brands: In the footwear segment, Metro Brands is anticipated to report double-digit revenue growth, with an 11.3 per cent YoY increase projected for Q1FY26. The company is expected to maintain healthy gross margins and an improving EBITDAM.

Immediate and future outlook

The HDFC Securities report indicates that the demand peak in discretionary categories, excluding value fashion and jewellery, appears to be behind us. Many discretionary categories continue to experience moderating growth, characterized by negative to low single-digit SSSGs. The sector has also undergone a round of earnings downgrades, with valuations remaining ‘punchy’, trading between 40-150x FY27 P/E for most players.

For the fashion and apparel sector, the immediate outlook suggests that value retail will continue to be a growth driver, while other segments might face demand pressure. The emphasis for companies will be on managing margins amidst weak SSSG and higher operational costs, particularly from quick commerce. The report also suggests that rural recovery could play a role in improving margins for companies like V-Mart.

Thus while the Indian consumer discretionary sector, including fashion and apparel, is projected to see overall revenue growth in Q1FY26, the performance remains uneven. Value-oriented segments and new-age businesses are leading the charge, whereas a broader recovery for all categories is contingent on stronger consumer demand and a more favorable operating environment. The sector's ability to navigate weak SSSG and optimize costs will be crucial for sustainable profitability in the near term.