Early Q1 results are indicating a noticeable deceleration in revenue and profit growth for Indian companies, hitting levels not seen in at least nine quarters. This slowdown is particularly evident when excluding the one-time gain reported by Reliance Industries (RIL). Several key sectors, including banking, finance, fast-moving consumer goods (FMCG), and information technology (IT), are exhibiting lackluster performance, contributing to the overall subdued growth.
The initial trend for the June quarter reveals persistent weakness. Net profit for a sample of 186 companies rose to a five-quarter high of 18.5% year-on-year, but this was largely influenced by RIL's one-time benefit from selling its investment in Asian Paints. Revenue increased by only 4.6%, marking the lowest growth in at least nine quarters. Excluding RIL, revenue and profit grew by 5.7% and 7.3% respectively, both representing nine-quarter lows. The significant impact of RIL's one-off gain is highlighted by its increased share in the sample's net profit, jumping to 24.4% compared to 16.4% in the previous year.
Banking and finance companies are facing pressure on net interest margins and lower credit offtake, resulting in a nine-quarter low growth of 6.4% and 5.1% in revenue and net profit, respectively. Similarly, IT companies are experiencing a slowdown, with revenue and profit growth at a five-quarter low of 3.4% and 4.6% respectively. These figures suggest a broad-based deceleration across critical sectors of the Indian economy.
In contrast to the observed slowdown, earlier expectations were optimistic, with analysts anticipating sectors like capital goods, cement, healthcare, oil and gas, and telecom to drive profit growth into double digits. However, the current results indicate a weaker earnings picture than initially projected.
Despite the softening of input costs, they still remain elevated compared to historical levels. This has prevented India Inc. from achieving the operating profit margin (OPM) of 19% witnessed during FY2022. However, the interest coverage ratio of India Inc. improved marginally to 4.7 times in Q1 FY2025 over 4.5 times in Q1 FY2024. Better profitability amid the festive season and stable finance costs should aid in the improvement of the interest coverage ratio in Q2 FY2025.
ICRA expects India's gross domestic product (GDP) to grow by 6.8% in FY2025. They foresee a transient slowdown in growth in H1 FY2025, followed by a pick-up to above the 7.0% mark in H2 FY2025, aided by government capex, a pick-up in private capex, and an improvement in rural demand. The aggregate revenues of the listed companies expanded, but the General Elections and heatwaves impacted revenues for sectors like construction, cement, iron and steel, hotels and auto OEMs. Operating leverage benefits coupled with easing of certain input costs led to a YoY expansion in operating profit margin (OPM) of India Inc. by 30 bps to 17.6% in Q1 FY2025.
Early-bird results for the April–June 2025 quarter suggest a weakening in demand, with companies depending on other and non-core income to drive profitability. Net sales of early-bird companies grew at their slowest pace in at least 16 quarters. Revenue slowdown, coupled with faster growth in operating expenses like employee costs and overheads, negatively impacted the bottom line. The combined profit before tax (PBT), excluding other income, contracted 10.3 per cent year-on-year in Q1FY26, their worst showing since the Covid-19 pandemic.
