Spending on Steroids

Prices are rising, but so is India’s appetite for better things.

Instead of trading down, Indian consumers are trading up; upgrading lifestyles, choices, and experiences across the board. It’s a shift that traditional economics struggles to explain, but investors can’t afford to ignore.

What we’re seeing is the rise of premiumisation: a behavioural upgrade happening one category, one income bracket, and one aspiration at a time. It is either driven strongly by the wish to improve lifestyle because waiting for 2 days just does not feel right when paying a few extra bucks gets you the work done in minutes or it is a larger effect of fitting in and having a social proof of “I CAN AFFORD.”

Before we dive into the sectors and stories, let’s understand the forces that are powering this new India.

The K graph clearly distinguishes between how the trajectory of premium, high margin goods and services is going to look like in India. A small horde of high-income individuals who make the top 3-5% of India will drive the rally, because for them, high prices signify quality, comfort and status. They have been driving this rally and will lead the next one too.

The bottom part of the K explores those Indians who are well above the poverty line and can easily afford the base case Roti, Kapda, Makaan. They “want” an upgrade, the moment their income stabilises and hits a certain threshold. They will likely accumulate in the top part of the K soon, further strengthening the rally, or have probably already encountered the “FOMO” & “YOLO” phenomenon which has led them to spending on debt.

The bottom half witnesses relative premiumisation. In a developing nation, buying a Mercedes or travelling all year round in a business-class, or being able to afford a Rolex, without hurting the bank is not the only true premiumisation driver. For a family with no vehicles, a 2W fits under the premiumisation theme & for the one with a 2W, an entry level 4W does too!

This quotation from a newspaper article on Maruti Suzuki accurately captures the K shaped graphs peak essence.

“The renewed focus on small cars is part of Maruti’s broader strategy to arrest declining market share, which has been under pressure due to a slump in small-car sales alongside rising SUV demand. In FY25, the overall passenger vehicle market grew only 2% in cumulative wholesale dispatches, while Maruti’s market share fell to 40.9%, the lowest since FY13 when it stood at 39%. The company had commanded over 51% market share in FY19 and FY20.

Maruti’s optimism is reinforced by a GST rate cut on small cars, which has effectively lowered prices by 11-13%. The company has also introduced a festive Rs 1,999 EMI scheme for entry-level models, launched during Navratri and extending through Diwali, to appeal to two-wheeler owners.”

The fact that SUV demand has risen proves the upper half, and the company targeting 2W users to buy base level cars strengthens the thesis of relative premiumisation .

Let’s explore the top K in more depth

The Veblen Effect 

Classical economics says that when prices rise, demand should fall. The Veblen Effect is what happens when people buy something precisely because it is expensive.

A higher price becomes a signal. It signals status, taste, access and success. The product is no longer just solving a functional need. It is helping the buyer say something about who they are and where they have reached.

In India, this shows up in categories where identity is visible to others. Cars, watches, phones, fashion, travel, fine dining. The decision is not driven only by comfort or utility. It is driven by the feeling of being seen with it, or being seen in that place.

For investors, this matters because Veblen products tend to have two things that ordinary products do not: strong pricing power and very loyal customers. When input costs rise, these companies can raise prices without losing their core buyer. That is the starting point of the premiumisation supercycle.

India’s premiumisation wave is not random. It is the result of a clear economic shift that places the country at the start of a powerful consumption cycle. Several forces have come together at the same time, creating the perfect runway for people to upgrade everything from cars to clothes to experiences.

The reasons:

The GDP Trigger: India crosses the 2700 dollar mark

Countries that reach this income zone usually enter a phase where households move from survival spending to discretionary spending. China experienced this in 2007. Once a country hits this level, the demand for better homes, cars, fashion and experiences often grows faster than incomes. India is entering the same zone now, and the impact is visible across categories.

Engel’s Law: Essentials shrink, lifestyle expands As incomes rise, the share of spending on food and basics falls. This is Engel’s Law. Indian households are now spending a much smaller share of their income on essentials compared to decades ago. The money saved naturally shifts to lifestyle categories like beauty, restaurants, fitness, electronics and travel.

The wealth effect: Assets are rising faster than salaries

Equities, gold and real estate have all appreciated strongly. This has made a large part of the urban population feel richer even if their monthly income has not grown at the same pace. When asset values rise, people loosen their wallets. This confidence is one of the strongest drivers behind premium purchases.

Volume game vs value game

For decades, Indian companies grew by selling to millions at low price points. Today, growth is coming from selling better products to fewer people. The economics are more attractive. Companies no longer need massive volume growth to earn higher profits. They need a better mix.

Margin magic

Selling one SUV at a higher price can generate the same profit as selling several smaller cars. This shift from small-ticket to big-ticket products gives companies operating leverage and pricing power. The same applies in beauty, fashion, liquor and home improvement. Higher ASP means higher margins.

Inflation privilege

Mass consumers react strongly to inflation. Premium consumers do not. If the price of a premium car increases, the buyer may complain but still buys it. If a five-rupee biscuit becomes six, the buyer switches brands. This creates a split where premium brands stay strong even when essentials struggle. Companies that target the upper-income segment become far more resilient.

Organised categories lift ASPs

Many Indian categories like beauty, liquor, snacks, home décor and ethnic wear are moving from unorganised to organised. Whenever this happens, the category naturally shifts to higher quality and higher price points. This is why premiumisation is visible even in categories that were once completely value driven.

Automobiles

India’s auto market has undergone the most dramatic shift. The hatchback, once the backbone of Indian mobility, is no longer the default choice.

1. SUVs dominate the market

SUVs now make up more than half of all passenger vehicles sold in India. This is the single strongest proof of premiumisation in the country. First time buyers are skipping the basic car entirely and starting with compact or mid size SUVs. Financing has made this upgrade realistic for a large segment.

2. Urbania and aspirational utility

Force Motors transformed the old school Tempo Traveller (associated with “ambulance” & “kidnapper van”) into the Urbania, a premium van with features, styling and comfort that were never associated with utility vehicles. It shows how even functional categories are becoming aspirational. The same engine, with premium interior and exterior.

3. Auto ancillaries benefiting from higher kit value

Premium cars use more chrome kits, higher quality lighting, electronic clusters, sensors and digital interfaces. This lifts the kit value per vehicle. Companies like SJS, Lumax and Minda benefit directly because every new buyer wants a car that looks and feels premium.

This data from Q1’FY 26 shows peak shift to premiumisation:

Watches

Watches have moved from utility to identity. This is one of India’s strongest Veblen categories. Watches have essentially become the jewellery category for men. Ethos and Titan have repeatedly stated that customers are voluntarily trading up to higher price points because watches are now associated with taste and status.

Alcohol

People are drinking better, not more. This is one of the cleanest examples of taste upgrading in India.

1. White spirits rising

Gin, tequila and other white spirits are growing much faster than regular whisky. These categories were tiny earlier but are now mainstream in urban consumption.

2. Radico Khaitan and premiumisation

Radico’s premium brands like Jaisalmer are expanding quickly. Premium and luxury segments contribute a larger share of growth.

3. United Spirits shifting focus

United Spirits has actively cleaned up its mass portfolio and is pushing premium whisky and Prestige and Above brands.

4. Varun Beverages exploring adjacency

Varun Beverages is moving beyond carbonated drinks. Its partnership with Carlsberg in Africa and interest in premium bottling opportunities indicate a potential shift into higher value beverages.

5. Cocktail culture

Urban India is shifting from straight liquor to cocktails. Bars and restaurants have leaned into the premium experience trend, and consumers prefer crafted drinks over cheap options.

Real Estate

The luxury housing segment has outperformed every other part of residential real estate. These are a few deals which back the premiumisation in real estate:

Buyer	Deal Value (Approx)	Property Details	City	Year
Radhakishan Damani	₹1,238 Cr	Bought 28 luxury apartments in Oberoi Three Sixty West, Worli. This is widely considered the largest single residential transaction in India's history.	Mumbai	2023
Beverage Industry Tycoon	₹1,100 Cr	A historic bungalow on Motilal Nehru Marg (formerly the first residence of Jawaharlal Nehru). The buyer is reported to be a leading industrialist from the beverage sector.	Delhi	2025
Leena Gandhi Tewari	₹703 Cr	Acquired two sea-facing duplexes in Naman Xana, Worli. The deal value includes stamp duty, setting a record for the highest price per square foot.	Mumbai	2025
Yohan Poonawalla	₹500 Cr	Purchased a 30,000 sq. ft. mansion in Cuffe Parade, one of South Mumbai's most exclusive locations.	Mumbai	2024
Rafique Malik Family	₹405 Cr	Bought multiple luxury apartments in the iconic Palais Royale, Worli.	Mumbai	2024
Uday Kotak	₹400 Cr+	Purchased 12 units in Shiv Sagar Estate, Worli, consolidating ownership in the building for the family.	Mumbai	2025
Gentex Merchants	₹310 Cr	Acquired a 3,540 sq. yard bungalow on APJ Abdul Kalam Road in the Lutyens' Bungalow Zone (LBZ).	Delhi	2025
Pirojsha Godrej	₹290 Cr	Bought four luxury apartments near Peddar Road for personal use.	Mumbai	2025
Anil Gupta	₹270 Cr	Purchased two apartments in Lodha Malabar, Malabar Hill.	Mumbai	2024
Niraj Bajaj	₹252 Cr	Bought a triplex penthouse in Lodha Malabar, Malabar Hill.	Mumbai	2023

ABFRL building a luxury ethnic portfolio

ABFRL is capitalizing on India’s premiumisation super-cycle, with its luxury and ethnic segments witnessing explosive growth. The ethnic portfolio, led by powerhouses like Sabyasachi and Tarun Tahiliani, recently clocked a massive 79% growth in designer segments, while the broader ethnic business grew at 25% YoY, validating the 20-25% CAGR trajectory you observed.

Adding to this momentum is the landmark launch of Galeries Lafayette in Mumbai, a move that cements ABFRL's status as the gateway for global luxury in India, perfectly timed to capture the surging demand from affluent Indians.

Other key trends

Brand	Value Migration
	Zomato has shifted the way people order and eat. It has built a convenience premium wherein consumers accept delivery and platform fees. People choose time savings over money
	Moving from commodity oils to premium snacking. Act II is positioned as gourmet popcorn competing with 4700BC inside cinemas. Once consumers enjoy better taste and quality, downgrading feels unpleasant.
	In the concall, management noted that post covid, parents who can afford shifted their children to CBSE from state boards. They had to immediately penetrate this market to cater to the new relevance.
	For brands like Nykaa, higher ASP and repeat purchase behaviour are driven highly by sophistication of things men & women largely apply on their skin, wear, and use as an accessory. Such purchases are driven by
	Every kid wants an iphone. Once a symbol of owning an aspirational product, now has become super-common amongst youngsters. This is largely led by easy financing options & by the need to have social proof.
	They are shifting stores to better layouts, fabrics and product mix & moving retail identity upwards while retaining accessibility.
	The surging demand for curated nightlife and premium concert formats signals a definitive rise in 'experience as an expense,' as consumers increasingly reject basic options in favor of high-quality, premium entertainment venues."

At Xylem PMS, premiumisation is not just a consumption story. It is a structural value migration theme that shapes how we build long term portfolios. We track a set of simple but powerful metrics that help us identify companies benefiting from this shift.

1. Clear value migration

We look for businesses where consumers are moving from an old way of doing things to a new and superior alternative. The upgrade must deliver better convenience, better quality or better experience. If a company can pull customers upward within the category, it signals a strong and sustainable premiumisation runway.

2. Expanding margins and rising ASP

Premiumisation works best when it improves unit economics. A better product mix lifts average selling prices, which lifts margins. Companies that show rising ASP, rising gross margins and stable volume growth usually have strong pricing power. These are the businesses that benefit the most when the consumer starts trading up.

3. Brand strength and pricing power

The third filter is brand. Premiumisation cannot happen without trust. Strong brands convert aspiration into actual spending. They command higher prices, face less competition and build loyal communities. When a brand continues to attract new customers at higher price points, it signals that premiumisation is not a phase but a moat.

These three triggers form the core of how we identify premiumisation opportunities early and allocate capital with conviction.

India today is living through what we call the Veblen vaccine. Once people experience a better lifestyle, they do not want to go back. The top end of the income pyramid is spending aggressively. The middle wants to keep up. Even those without the resources are stretching through EMIs, credit and financing to participate in this upgrade cycle.

This behaviour is not slowing down. It is spreading. As incomes rise, as education improves and as social visibility increases, the desire for convenience, comfort and quality becomes stronger. The next leg of growth will come from millions of households climbing one step at a time toward better choices.

Premiumisation is no longer a niche trend. It is becoming a defining feature of India’s consumption story. Companies that recognise this change and create products that people are proud to trade up to will lead the next decade. And we intend to own them early, patiently and with high conviction.

If you'd like to discuss your portfolio or explore how Xylem can help you navigate this market, consult with us here.