Core rises, non-core income collapses: India Inc's two-speed revenue challenge in Q2

But this recovery was offset by a sudden collapse in non-core, or “other", income, which contracted 1.5% year-on-year — its weakest showing in at least nine quarters. After five straight quarters of roaring double-digit growth, other income fell for the first time since Q2FY24. Sequentially, the fall was far steeper at 17%, pulling overall income growth down to 2%, compared with 6% in the previous quarter.

Experts note that the fading of the non-core support could weigh on India Inc's headline revenue growth which has been propped up elevated non-core income throughout last year. "Headline revenue and net profit growth may stay muted in Q2 and beyond (Q3) if non-core weakness lingers and core recovery remains shallow," said Pranay Aggarwal, chief executive officer (CEO) of Stoxkart, a discount brokerage firm.

The sample is a part of entire listed universe of more than 4,000 companies.

Disappearing income cushion

What explains this vanishing non-core income? Puneet Sharma, chief executive and fund manager at Whitespace Alpha, calls it the start of a “non-core normalization" – a phase where treasury gains and one-offs that had boosted toplines are fading out.

Other income refers to earnings generated outside a company’s main operations, such as interest, dividends, or gains from asset sales.

Sharma said last year’s non-core base was inflated by one-time items like asset sales, subsidiary stake divestments, and treasury gains, which have now largely disappeared.

“With equity and bond markets stabilizing, mark-to-market gains have narrowed, as well," said Aggarwal. “Meanwhile, weaker commodity and forex trends have trimmed non-operating profits."

In the absence of these gains, net profit growth has slowed to around 8% year-on-year, the weakest in four quarters. Sequential profits were down about 7%, extending a 3% fall in the June quarter, as per the Mint analysis.

Aggregate profit after tax (PAT) for 551 companies is ₹2.12 trillion.

BFSI drag

The banking, financial services, and insurance (BFSI) sector defied this “two-speed" pattern, by weakening on both fronts.

A separate Mint analysis of 124 BFSI firms from the sample found that both core and non-core income fell to their lowest levels in nine quarters, indicating stress across operating and treasury lines.

According to Axis Securities, bank credit growth was muted at 10% year-on-year as of 19 September, with sluggish retail and corporate lending. The brokerage expects banks’ core income to track the gradual recovery in systemic credit growth but cautioned that rising bond yields may erode treasury gains.

“Treasury income is likely to be considerably lower sequentially (in Q2), adding to the profitability woes of the banks," Axis Securities noted.

With BFSI making up around 25% of Mint’s sample, the sector dragged down India Inc’s non-core revenues in Q2. The broader sample shows that India’s top private banks derive 15-18% of total revenue from non-core sources.

Income buckets

The importance of other income is clear. About 10% of the sample drew over a quarter of total revenues from non-core sources, a group that includes banks, mining, and realty firms, where treasury profits, asset sales, or mark-to-market gains have long driven large earnings swings.

Another 6% of companies earned 15-25% of income from non-core avenues, a bracket that also includes several prominent private banks.

Roughly 14% of India Inc. sits in the mid-band, earning 5-15% of total income from non-core sources. This group includes diversified majors such as Reliance Industries, NTPC, and Infosys, companies that periodically benefit from treasury or investment gains, the data showed.

The remaining 70% of firms derived 5% or less of total income from non-core sources, the analysis found.

Rising core revenue typically signals steady consumption, growing corporate investment, and genuine economic momentum. But does a shrinking non-core stream threaten the broader recovery?

Sharma of Whitespace Alpha said that with non-core income faltering, companies are losing an easy growth cushion and must now rely squarely on core operations. “That’s a high bar to clear quarter after quarter," he said. “A mix of strong core performance and modest non-core support would be more sustainable."

Green shoots

Whether the rebound in core income marks a lasting demand revival or a temporary boost from fiscal tailwinds remains uncertain.

“It may be premature to call it a sustained uptrend," pointed out Stoxkart's Aggarwal.

He noted that part of the recovery could stem from short-term fiscal support, front-loaded government spending, and festive-season consumption, rather than a broad-based pickup in private demand.

At the same time, Aggarwal sees visible recovery across several sectors that suggests more durable momentum.

“Chemicals and steel are benefiting from stable global prices and higher capacity utilization," he said. "Cement and realty continue to gain from infrastructure momentum and resilient housing demand."

He added that IT services and pharmaceuticals are also contributing through steady export demand, healthy deal pipelines, and tighter pricing discipline. While Aggarwal expects IT, industrials, and select manufacturing to offset some of the drag from weaker non-core income in Q2, he cautioned that this buffer may be limited.

“Much will depend on how broad-based the core recovery is, with mid-sized firms still struggling to lift revenues," he said. “Unless the core recovery broadens beyond a few large firms, muted non-core income will continue to weigh on topline growth."

This declining dependence on non-core sources also marks a shift in corporate behaviour. As operating strength returns, companies are moving focus from financial manoeuvres to core income growth, Sharma noted. With interest rates plateauing and surplus cash yielding less, many firms are redeploying funds into capex and working capital, he added.

“The slowdown in non-core income is also a by-product of this healthier behaviour," Sharma said. “It’s a reminder that India Inc’s real, long-term story will be defined by its core operations."