Indian Sectors Slowing Down in Revenue Growth

India’s corporate sector witnessed a slowdown in revenue growth during the December quarter of FY25, marking the weakest expansion in five quarters. A Moneycontrol analysis of 382 firms in the BSE500 index that released their Q3 results revealed that net sales grew by just 4.1% year-on-year, the slowest pace since September 2023. This marks the seventh consecutive quarter of single-digit revenue growth, reflecting weak demand amid an economic slowdown. The decline was largely attributed to reduced government spending in an election year, which impacted business activity across industries.

Despite sluggish revenue growth, Indian companies experienced a strong rise in profitability. Operating profit surged by 9.5%, marking its fastest increase in three quarters, while operating profit margins saw their highest expansion in over three years. Net profit also jumped by 17%, the sharpest increase in four quarters. This improvement was primarily driven by stable total expenditure and lower interest costs. Notably, raw material costs fell 3.8% YoY, the sharpest drop in 13 quarters, while employee costs rose at a slower pace of 6.5%, reflecting subdued hiring trends.

Sectorally, the automobile and consumer sectors struggled, with the auto sector reporting a 2% decline in profits due to weak demand. Management commentary for FY26 remained cautious, with signs of demand moderation. Meanwhile, the consumer sector posted a 5% YoY decline in profits, impacted by margin pressures and subdued demand conditions. The IT sector had a mixed performance, consistent with its historically weak seasonal trends. On the other hand, healthcare stood out with a strong 25% earnings growth, reinforcing its resilience amid broader market challenges.

Looking ahead, analysts expect earnings recovery to take at least another quarter as market conditions stabilize. Government spending, which saw a 2% YoY decline in the first half of FY25, is projected to rise by 14% in the latter half of the fiscal year. Since government expenditure accounts for around 10% of India’s GDP, this increase could contribute an additional 1.5 percentage points to economic growth. A Jefferies report highlighted that GST collections saw a 12.3% YoY rise in January 2025, indicating early signs of economic recovery.

However, concerns remain about the broader macroeconomic outlook. A Kotak Institutional Equities report pointed out that slowing consumption, high inflation, and a weakening rupee could pose further risks. Meanwhile, brokerage firms such as Nuvama Research foresee corporate earnings growth of 14–16% for FY26-27 but warn that weak demand and high valuations could temper future profit margins.

To Summarize

While Q3 results reflected sluggish revenue growth, rising profitability provided some optimism. Analysts remain cautious, with the near-term outlook hinging on demand revival, stable government spending, and global economic trends.