Indian companies reported their slowest revenue growth in five quarters during the December quarter, primarily due to weak demand amid a slowing economy. Experts suggest that a revival in earnings growth may take at least another quarter as market conditions gradually improve.
A Moneycontrol analysis of 382 firms in the BSE500 index, which announced earnings for the quarter ended 31 December, showed net sales grew 4.1 percent—the slowest pace since end-September 2023. This marked the seventh consecutive quarter of single-digit year-on-year revenue growth. Only those firms that had comparable data for 12 previous quarters were chosen.
The operating profit of Indian companies grew by 9.5 percent, marking the fastest increase in three quarters, while operating profit margins saw their highest rise in 13 quarters. Additionally, net profit surged by 17 percent, the fastest growth in four quarters. This improvement in operating profit and overall profitability was primarily driven by stable total expenditure and interest costs, according to Moneycontrol data.
Energy, banking and financial services companies were excluded from the study.
Raw material costs fell 3.8 percentYoY in Q3, the steepest drop in 13 quarters, and declined over 8 percentQoQ. Employee costs rose 6.5 percent YoY, the slowest increase in three quarters, marking the fifth consecutive quarter of single-digit growth. Operating and manufacturing expenses increased 6.1 percent YoY, the slowest pace in 12 quarters.
Experts noted that while Q2 earnings were particularly weak, Q3 showed some signs of relief in comparison. The slowdown in revenue and demand was largely attributed to reduced government spending in an election year, which resulted in lower business activity across industries. However, looking ahead to Q4, there is optimism for some improvement as conditions stabilize.
Following muted spending by the central government in the first half of FY25, which saw a 2 percent year-over-year decline, a significant recovery of 14 percent YoY growth is anticipated in the second half of FY25. Government spending, excluding interest, constitutes around 10 percent of India's GDP, and a year-over-year swing of around 15 percent could contribute an additional 1.5 percentage points to GDP growth, according to a recent Jefferies report. This positive impact is expected to be reflected in high-frequency data as well. For instance, GST collections saw a noticeable uptick in January 2025, with a 5 percentage point acceleration to 12.3% YoY, reflecting activity from December 2024, the report added.
On sectoral fronts, experts said the auto sector experienced a weak performance, with profits declining by 2% year-over-year. Management's outlook for FY26 demand remained uncertain, citing signs of moderation across various segments. However, there was a more optimistic view regarding rural demand, which is expected to outpace urban demand.
The consumer sector continued to underperform, with profits across the sector declining by 5% YoY. Weak demand conditions, coupled with margin pressures, contributed to the subdued performance, and management commentaries provided little reassurance regarding a potential recovery. experts said. The IT sector exhibited a mixed performance in what is traditionally a seasonally weak quarter. The healthcare sector stood out with a robust 25% earnings growth reinforcing its strong position amid broader market challenges, experts added
Meanwhile, some brokerages anticipate that the recovery path may be weaker going forward. According to a report by Motilal Oswal Securities, expectations for FY26 corporate earnings remain somewhat elevated given the prevailing macroeconomic and microeconomic conditions. In light of these factors, there is potential for further downward revisions. Additionally, the recent correction in broader markets reflects some of the anticipated earnings disappointments in the near future.
According to a recent Kotak Institutional Equities report, India's macroeconomic outlook has weakened in recent months, driven by a slowdown in consumption, particularly of basic staples, challenges from inflation, and income pressures on low-income households. Additionally, a potential decline in government capex and increased external pressures, including a low BoP surplus, declining FX reserves, and a weakening INR, have raised concerns.
The 3QFY25 results revealed a modest deterioration in bank asset quality, mainly from microfinance institutions, and continued consumption weakness, despite some rural recovery. However, investment momentum remained strong. The weak 3Q performance underscores concerns over overly optimistic profit and volume projections, as well as sector-specific disruption risks, Kotak report said.
Nuvama Research sees BSE500 PAT growth estimates at 14–16% for FY26–27, but weak demand may undercut record-high margins. Earnings outpaced revenue in FY24, led by cyclicals and midcaps, but FY25 is normalizing to sub-10% revenue growth, matching pre-COVID trends. Demand remains key, yet the outlook is weak amid a fragile global recovery, slowing credit, subdued capex, and tight policies. With earnings slowing and valuations still high, caution is essential, the brokerage said.
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