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Published: October 18, 2024
Updated: October 18, 2024

India Inc Faces Continued Slowdown in Q2FY25: Early Results Paint a Cautious Picture

Sluggish Corporate Growth

India’s corporate sector showed signs of continued slowdown in the second quarter of FY25, as indicated by early results from leading companies. Corporate earnings and revenue growth remained subdued, reflecting the impact of a challenging demand environment. The combined net profit of 167 companies that have declared their Q2FY25 results grew by just 5% year-on-year (Y-o-Y), remaining flat compared to the previous quarter. This figure is a stark contrast to the 16% Y-o-Y growth recorded during the same period last year.

Revenue Growth Slows to Five-Quarter Low

The top-line growth for these companies slowed to 7% Y-o-Y in the July-September period, marking the slowest pace in five quarters. This marginally surpassed the post-pandemic low of 6.7% seen in Q1FY24. The cumulative revenue for these firms reached Rs 7.4 trillion, slightly up from Rs 7.22 trillion in the first quarter of FY25 and Rs 6.92 trillion a year ago. The slowdown highlights the sluggish recovery across key sectors, with analysts largely unimpressed by the overall performance.

Sectoral Performance: IT and BFSI Outshine Others

The early results have been dominated by companies in the banking and IT services sectors. These sectors together contributed to 71% of the combined net profit and over 50% of the net sales in Q2FY25. IT services companies, including major players like Tata Consultancy Services, Infosys, Wipro, and HCL Technologies, delivered a 10.4% Y-o-Y growth in combined net profit, reaching Rs 29,703 crore for Q2FY25. Their revenue grew by 5.7% Y-o-Y, the fastest in five quarters, supported by strong demand.

Banks and financial services firms (BFSI) also posted robust results, with a 12.2% Y-o-Y rise in net profit, reaching Rs 34,727 crore in Q2FY25. Gross interest income for BFSI firms grew by 13.2% Y-o-Y, although this was the slowest growth rate in 10 quarters. However, the numbers are somewhat skewed due to Axis Bank’s acquisition of Citibank India’s retail business earlier in the year.

Other Sectors Struggle to Maintain Growth

Outside of IT and BFSI, corporate profitability remained under pressure. Excluding these sectors, the net profit growth for other companies was muted. These firms posted a combined net profit of Rs 55,958 crore, which was only marginally higher than the Rs 55,435 crore recorded in the same quarter last year. Notably, sectors such as FMCG, automotive, retail, and cement saw weak demand and declining margins, contributing to the overall sluggish performance.

A Cautious Outlook Ahead

The early results from Q2FY25 suggest that India Inc is grappling with a challenging business environment, with demand weakness and margin pressure persisting across most sectors. While IT services and BFSI have outperformed, other sectors continue to struggle with slow growth. Analysts remain cautious, noting that the overall economic conditions are not expected to improve significantly in the near term.