With both GDP growth and India Inc’s performance taking a hit in the first half of this fiscal, all eyes were on the second half of the year, for a rebound. The results of listed companies for the October to December quarter (Q3) of FY25 suggest that growth is indeed staging a recovery, albeit a patchy one. An analysis by this newspaper found that for 1,435 listed companies, aggregate net profits (excluding one-offs) for Q3 grew by 6.1 per cent year-on-year, after shrinking by 1.8 per cent in Q2 and growing just 2.3 per cent in Q1.
A strong show by companies selling high-end goods and services, a pickup in the core sector and a profit boost from falling energy costs aided the show. Profit growth was driven almost entirely by an expansion in operating profit margins, which stood at 25.8 per cent in Q3 compared to 22.9 per cent in Q2, thanks to lower energy costs. The overall demand environment however remained subdued with the companies reporting 7.2 per cent revenue growth in Q3, the same as the preceding quarter. As sales growth holds the key to durable profit expansion, hopes are now pinned on tax cuts announced in the Budget and the recent rate cut to bump up aggregate demand.
However, the performance of individual sectors reveals an uneven recovery. Consumption trends continue to diverge, with discretionary goods and services registering strong growth, while staples falter. In Q3, sales of FMCGs (5.8 per cent), automobiles (6.1 per cent), telecom services (5.6 per cent) remained muted. But scorching sales growth continued for real estate (23.3 per cent), jewellery (32.5 per cent), durables (37.5 per cent), hotels (21.2 per cent) and e-commerce (18.5 per cent). A heartening trend here was pick-up in sales from traditional retail trade (19.3 per cent sales growth). Core sectors such as cement, power generation and refineries managed a sharp improvement in profitability on the back of lower input and energy costs, but their topline growth remained anemic at sub-5 per cent. This is indicative of muted industrial activity.
Even as storm clouds gathered on the global front, export-oriented sectors managed a good show. Revenue growth for IT services (6.4 per cent), pharmaceuticals (11.9 per cent), textiles (8.3 per cent) were the same as, or slightly improved over the previous quarter’s levels; but whether this survives the Trump onslaught remains to be seen. Financials delivered a steady show, with banks and NBFCs managing income growth of 11.7 per cent and 10.7 per cent this quarter. But their income growth fell by more than half from 26-29 per cent a year ago.
Income tax breaks may put more money in the hands of the spending class, boosting discretionary consumption. This will take time to get to the bottom of the pyramid. The 25-basis point rate cut may prompt fence-sitters to buy big-ticket items, though it may not alter existing EMIs (Equated Monthly Instalments). After a fiscal and monetary stimulus, policymakers can only wait for India Inc to kick-start a new capex and hiring cycle.
