Early trends show sluggish Q4 earnings growth, persistent cost pressures

markets

Fourth-quarter earnings reports from Indian companies indicate that a sustained recovery in earnings growth remains uncertain. A review of financial statements shows a deceleration in operating profit growth for the quarter ended March 31, primarily due to sluggish sales and subdued demand.

An analysis by Moneycontrol of 111 companies (excluding energy, banking, insurance, and financial services) with consistent data over the past 10 quarters reveals that operating profit grew just 6 percent year-on-year—the slowest in five quarters and the seventh consecutive quarter seeing single-digit growth.

Net profit also rose 6 percent year-on-year in the fourth quarter of FY25, slowing from 12 percent in the third quarter of FY25 and 14 percent in the fourth quarter of FY24. Net sales growth moderated to 5.5 percent, its weakest pace in three quarters, compared to 6.3 percent in the previous quarter and 6 percent a year ago. Cost pressures persisted, with raw material expenses rising in double digits for the fifth straight quarter, and finished goods costs following suit for the fourth.

Independent analyst Deepak Jasani observed that earnings thus far have marginally missed expectations, with the IT and FMCG sectors showing particular weakness. However, he noted that the current trends may shift as a large number of companies are yet to report. With supportive government measures in play, he remains cautiously optimistic about an improvement in upcoming results.

India’s leading IT players—Infosys, TCS, Wipro, and HCLTech—concluded a tough Q4 with sequential revenue declines. Infosys led with a 3.5 percent fall, while the others saw dips of 0.8 percent. While seasonal softness is typical for Q4, worsening macroeconomic conditions and client caution further dampened demand. Discretionary and new projects were deferred, with only cost-optimisation initiatives continuing.

Independent analyst Ajay Bagga highlighted that the IT sector continues to face headwinds, citing subdued earnings, weak guidance, tariff uncertainties, and a slowing US economy. He noted that despite muted growth prospects, valuations remain elevated, keeping the sector underowned and underperforming.

In the FMCG space, Hindustan Unilever and Nestlé India posted weak earnings, as high input costs and muted urban demand weighed on margins. HUL cut its margin forecast, citing inflation and restrained consumer spending driven by stagnant wage growth. Nestlé’s margin slipped to 16 percent from 18 percent, while HUL’s dipped 30 basis points to 23.1 percent.

"For FMCG, volume growth still an issue, some companies showed higher input costs leading to margin erosion as well. Guidance is for a domestic demand revival on the back of a plentiful monsoon and good rural demand, while urban demand remains challenged. Valuations are too high for the present environment and until growth revives , this can be a sector that holds the price line, but appreciation is not expected", Bagga said.

A separate analysis of the banking sector showed a relatively strong performance. HDFC Bank reported best-in-class asset quality, and ICICI Bank showed improvement. Analysts remain optimistic about their capacity to sustain loan growth and manage credit costs, especially with the Reserve Bank of India’s accommodative policy stance expected to bolster credit demand and economic activity.