Tepid Q3 outlook spells more pain for India Inc. earnings

Analysts warn that overvaluation concerns and shifting global market sentiment will likely keep the momentum subdued across key sectors.

Nifty 50 companies serve as a benchmark for assessing Indian corporations' performance, and forecasts for the October-December period indicate weak single-digit revenue and net profit growth. 

Q3 predictions 

Brokerage firms Motilal Oswal Financial Services Ltd and Mirae Asset Sharekhan expect revenue and net profit to grow nearly 6% year-on-year (y-o-y). Antique Stock Broking predicts even slower revenue growth of 4.8% y-o-y but slightly stronger profitability growth of 7.2%. Nuvama Research expects modest revenue growth of 5% but significantly lower profit growth of just 2% on-year.

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“Corporate earnings will be muted as we have imported inflation by depreciation of the rupee. This has resulted in an elevated interest rate cycle to attract capital," said Manish Bhandari, chief executive and portfolio manager at Vallum Capital Advisors.

According to a Mint analysis, the pack of Nifty 50 companies has been grappling with an earnings slowdown for the past two quarters. Revenue growth decelerated to 7.9% in Q2FY25, the lowest in at least seven quarters, underscoring the challenges faced by corporate India. Rising costs and moderation in revenue growth contributed to weaker net profit growth.

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“Corporate profit margins came under pressure in Q2FY25, and this trend is likely to persist into Q3FY25," said Vaibhav Porwal, co-founder of Dezerv. “While direct tax collections grew at a healthy 16.5% on-year, GST (goods and services tax) collections slowed to 7.3%, and manufacturing activity moderated by the end of 2024."

“At the aggregate level, the earnings are expected to be a little soft. The economy is going through a phase of cyclical slowdown driven by multiple factors, the most important being muted government spending. The budget for FY25 had enthused confidence by allocating a higher amount towards capital spending," said Pawan Parakh, fund manager at Geojit Financial Services.

Parakh further noted the commentary from companies on the future outlook will be critical, as market expectations hinge on an earnings recovery from Q4FY25 onwards.

While the overall picture looks muted, Sanjeev Hota, vice president and head of research at Mirae Asset Sharekhan, expects some sectors to show resilience. “The December quarter is expected to show resilience in some areas, such as capital goods, pharmaceuticals, and information technology (IT) and telecom sectors," he said. 

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Conversely, he expects growth moderation in private banks, non-banking financial companies (NBFCs), and the automotive sector. “Meanwhile, metals, oil and gas, and cement sectors continue to experience earnings weakness," he added.

The demand outlook for the IT sector is expected to be on a strong footing. “We believe IT spending is on the cusp of recovery, supported by a stable geopolitical environment," said Parakh from Geojit. “Most tech companies have moved past their investment phase and are now benefiting from operating leverage, creating potential for positive earnings surprises."

Some also remain positive on exports-oriented sectors and segments such as reality and shipbuilding. “Export-oriented businesses stand to gain from a strong dollar. Banking, financial services and insurance firms (BFSI), and lifestyle sectors like hotels, travel and consumer discretionary are expected to deliver robust earnings growth in Q3FY25," Porwal added.

Bhandari from Vallum expects real estate, shipbuilding, alcohol, banking, and automobile sectors to post better results and cement and steel construction materials to deliver subpar performance due to lower demand and higher raw material costs.