Rising input costs to hurt companies’ margins despite expected strong Q3 show: Analysts

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26 Aug, 2025 12:21

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Listed Indian companies may report healthy profitability for Q3 of FY22 but the squeeze from rising input costs would be visible on margins.

While net profit growth would likely be in double digits, margins may come under pressure as prices of raw materials continue to stay elevated, said analysts. Kotak Institutional Equities expects aggregate net profit of the BSE-30 Index companies to increase 19 percent year on year (YoY) and 1 percent quarter on quarter (QoQ). For the companies of Nifty-50 Index, the increase is likely to be 20 percent YoY and 3 percent QoQ. The brokerage firm said that it estimates earnings per share of the BSE-30 Index at Rs 2,284 for FY2022 and Rs 2,645 for FY2023, and that of the Nifty-50 Index at Rs 726 for FY2022 and Rs 844 for FY2023.

"Most parts of the economy continued the recovery momentum in December quarter. However the Omicron variant spread may impact the Q4 numbers if it does not come under control soon. Commodity prices continue to be high and hence margins could come under pressure for companies in competitive sectors where they are looking to protect their market share. Focus will remain on the guidance on topline and margins for Q4 and FY23 by management", said Deepak Jasani, Head of Retail Research, HDFC Securities Ltd.

Tata Consultancy Services Ltd, Infosys Ltd and Wipro will announce their earnings on January 12, kick starting the earnings season. Overall, IT firms are expected to report another strong quarter following a stellar show in the second quarter, despite holidays and furloughs. Analysts said growth momentum is expected to accelerate further with investors seeing midcap IT companies outperforming large-caps yet again.

Most other sectors are also expected to report decent earnings. Profit after tax for banks is also expected to show strong growth with an expected decline in slippages and lower provisions. Early releases of key numbers by select banks indicate an improvement in credit growth for the December quarter.

Higher realisations and volumes may help metals and mining companies to do well on a YoY basis. Oil and gas firms are expected to see higher realizations for upstream companies with improved marketing and refining margins for downstream companies. Retailers will see strong volume growth led by increase in footfall and operating leverage-led margin expansion, analysts said.

Real estate companies are likely to see continued strength in sales due to higher number of planned launches. A recent report of Knight Frank showed registration of new properties rising continuously despite withdrawal of lower stamp duty.

In airlines, analysts expect sharp QoQ rise in revenues on account of high increase in passenger volumes. However, they believe carriers to report losses due to higher fuel cost and air passenger traffic.

For automobile and construction materials sectors, analysts see decline in earnings. Automobiles can see fall in revenues and margins due to weak demand in festive season, production issues and raw material headwinds. Construction materials may see weak earnings due to weak demand environment, higher fuel and power costs. In FMCG, there are visible signs of weakness in rural demand trends, analysts say.

"Going ahead, we believe higher raw material prices will continue to weigh on the company's margin but improvement in consumer demand and reducing supply-side constraints will help in driving growth", said Ajit Mishra, VP - Research, Religare Broking.