December quarter earnings muted so far as labour code impact weighs on results

markets

• India Inc's Q3 earnings muted due to labour code changes and one-time charges
• IT firms' profits fell, but revenue guidance rose due to AI growth optimism.
• Reliance sees 10% revenue growth; strong results expected for NBFCs and auto sector

Did our AI summary help?

India Inc's early December-quarter earnings were muted, as labour code-related changes weighed on performance, with some companies missing analysts' earnings estimates.

So far, around 10 companies from the Nifty 50 index have reported their quarterly earnings, including Infosys, Tata Consultancy Services, HCL Technologies, Tech Mahindra, Wipro, Reliance Industries, HDFC Bank and ICICI Bank, among others.

Offering an early assessment of the earnings season, Sunny Agrawal of SBICap Securities said there has been no clear “wow factor”, with most companies either missing earnings expectations or delivering mixed performances.

A key drag on earnings this quarter was the transition to the new Labour Code, which came into effect in November. The code introduced a series of changes aimed at improving wages, workplace safety, social security and overall workforce welfare. However, the transition has had a short-term financial impact on corporate earnings.

Tata Consultancy Services, Infosys, and HCL Technologies together incurred more than Rs 4,373 crore in one-time charges related to the implementation of the new labour code. This led to a steep double-digit decline in profits for India’s three largest IT services companies in the quarter ended December 31.

Despite the earnings pressure, broader commentary from IT companies indicates a gradual improvement in demand conditions. While traditional discretionary technology spending remains sluggish and clients remain cautious about non-essential projects, artificial intelligence is increasingly moving from experimentation to operational deployment. This shift is influencing deal pipelines, delivery models and hiring priorities across the sector.

The improving outlook was reflected in forecast upgrades from companies such as Infosys and HCL Technologies, leading to a marginally positive outlook for the IT sector. Infosys, HCLTech and Wipro have either revised or raised their revenue guidance for the year. Although TCS and Tech Mahindra do not provide formal revenue forecasts, management commentary from both companies highlighted strong expectations around artificial intelligence-led growth.

In the banking space, earnings were affected by one-time factors. ICICI Bank and HDFC Bank reported one-time provisions following the Reserve Bank of India's intervention on priority sector lending and agriculture book adjustments. As a result, headline numbers appeared slightly weak, although underlying performance remained largely in line with expectations.

Reliance Industries Ltd reported a resilient performance in the fiscal third quarter, with consolidated revenue rising 10 percent from a year earlier to Rs 2.94 lakh crore, led by growth in its digital services and oil-to-chemicals (O2C) businesses. Net profit (pre minority) rose to Rs 22,290 crore, while profit before tax increased 3.7 percent to Rs 29,697 crore.

Kranthi Baithini, Director – Equity Strategy at WealthMills Securities, said the December-quarter earnings season has been slightly muted, but there have been no major negative surprises.

While service-sector companies faced pressure from one-time employment cost adjustments under the new labour regulations, most companies delivered results broadly in line with estimates, Baithini said, adding that there have been no major positive surprises either.

Analysts said provisional updates from select retail-focused companies indicated robust trends. The non-banking financial company sector could emerge as a standout during the earnings season, as it continues to benefit from prevailing conditions. Along with NBFCs, the auto sector is also expected to report strong results.

FMCG companies have not reported results so far, but provisional updates from some firms have been encouraging. Marico’s update, in particular, was described as robust, indicating that select large-cap FMCG companies could post stronger numbers.

Agrawal said it is still early to conclude that earnings are weak at a broader level, as a majority of large-cap companies are yet to declare results. Over the next 10-12 days, as more earnings are announced, a clearer picture of the season is expected to emerge. He also said that metals, particularly non-ferrous companies, are likely to post strong numbers, citing Hindustan Zinc’s results as a blockbuster performance.