India Inc Q2 earnings: While India has reported impressive macroeconomic indicators—commendable GDP growth, a stable currency, and manageable inflation rates—the corporate sector seems to be telling a different story. Despite these favourable conditions, corporate earnings have been lacklustre, raising concerns about the reasons behind this disconnect. For the July-September quarter (Q2FY25), brokerages are anticipating slower growth in industry volumes and revenue. However, a sequential pickup in profit growth is expected, driven by lower raw material costs, reduced operating expenses, and higher margins.
The combined net profits of the Nifty 50 companies are expected to grow by 8.7% year-on-year (YoY) in the quarter, an improvement from the 1% YoY decline seen in Q1FY25. However, this remains low compared to the 29.7% growth in Q2FY24. Earnings estimates for 49 of the Nifty 50 firms are available for Q2FY25, with the exception of Adani Enterprises. Additionally, the combined net sales of the index companies are expected to grow just 4.2% YoY in Q2FY25, marking the slowest pace in the last 15 quarters.
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Tata Steel, Bharti Airtel, and Tata Motors are likely to be the primary drivers of corporate earnings growth in the second quarter. In contrast, Bharat Petroleum Corporation Ltd (BPCL), JSW Steel, and Oil & Natural Gas Corporation (ONGC) are projected to be among the weakest performers during this period. In the banking sector, leading lenders such as HDFC Bank, ICICI Bank, State Bank of India, and IndusInd Bank are expected to post low single-digit growth in net profits for Q2FY25. On the other hand, non-bank lenders like Bajaj Finance and Shriram Finance, along with life insurers such as SBI Life Insurance, are expected to report double-digit growth.
For fast-moving consumer goods (FMCG) companies, this is anticipated to be one of the weakest quarters, with brokerages predicting either a YoY decline in net profits or at best, low single-digit growth. In the IT services sector, Tech Mahindra, Wipro, and Tata Consultancy Services are expected to show double-digit earnings growth, while Infosys and HCL Technologies are likely to underperform.
Brokerage firms are now hinting at signs of distress in corporate earnings. The upcoming second quarter is expected to be the first in seven quarters to witness a decline both YoY and quarter-over-quarter. This is largely due to the inability of domestic cyclical sectors to fully offset the ongoing drag from the commodity sectors. The situation is further aggravated by an unfavourable base. Overall, corporate earnings are likely to have a flat quarter.
However, the question remains: is a flat quarter for India Inc really cause for concern?
A recent article by Policy Circle highlighted that India Inc’s capital expenditure is finally picking up pace. After a hiatus of nearly two years, the momentum in private capex signals improved financial health for Indian companies and their confidence in the country’s growth trajectory. A weak quarter does not necessarily indicate the need for alarm, especially when other fundamentals remain strong.
Disparity between India Inc’s earnings and economy
The disparity between India’s macro indicators and corporate earnings can be attributed to the uneven impact of macroeconomic factors across different sectors. While industries like IT services have benefited from global trends and increased demand, sectors such as FMCG and commodity-dependent industries have faced significant headwinds. Moreover, the outlook for certain sectors has been dampened by a slowdown in global trade and rising interest rates. These factors, as highlighted by a report from Motilal Oswal, are also putting short-term pressure on Indian equity markets. Even so, there is optimism that this could be a temporary blip, with conditions expected to improve once global conflicts de-escalate.
Corporate earnings have enjoyed four consecutive years of double-digit growth. However, rising commodity prices and diminishing gains from improved asset quality in banks and financial institutions are weighing on corporate performance.
Even so, the growth in private capex offers optimism for India Inc. Going forward, demand is expected to rise during the festive season, with additional support from moderating inflation and a recovery in rural demand. If the Monetary Policy Committee (MPC) introduces rate cuts in December, this will likely provide a further boost to corporate earnings.