Aggregate net profit of 37 companies in the Nifty 50 fell 8.1% year-on-year during the December quarter. This marked the first instance of negative earnings growth since the September 2022 quarter. The analysis excludes banks, financial services and oil and gas companies, given differences in their revenue and accounting structures.

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The decline in profits was primarily driven by higher employee-related costs following the implementation of new labour codes, which raised gratuity expenses across several sectors.

Revenue Growth Strengthens Sequentially

Despite the earnings contraction, topline performance improved. Aggregate revenue rose 10% year-on-year during the quarter, the first time revenue growth crossed double digits since the March 2023 quarter. 

This reflected improving demand conditions and a gradual recovery in consumption across several segments.
Operating profit increased 7.5% year-on-year, improving from 6.1% growth in the September quarter and 5% in the year-ago period, indicating underlying operating momentum despite margin pressures.

Consumption-Linked Sectors Show Improvement

Sequential revenue growth pointed to early signs of a consumption recovery. Auto companies led the expansion, with growth accelerating sharply during the quarter. Jewellery revenues also strengthened, supported by higher gold prices. Staples remained broadly stable, while retail, hotels and quick-service restaurant segments showed signs of stabilisation after recent weakness.

Labour Code Impact Weighs on Margins

Margins came under pressure due to the labour code changes, which mandate higher basic salary components, increasing overall employee costs. The impact was described as a one-time, non-cash adjustment that affected reported profitability for the quarter. Adjusted for this impact, the proportion of companies reporting weaker-than-expected earnings would have been significantly lower.

Contribution to Index Earnings

A limited set of large companies accounted for a majority of the year-on-year earnings accretion within the index, while a smaller group weighed on overall profit growth. Performance across the index remained mixed, with several companies reporting results broadly in line with expectations.

Overall, the December quarter reflected a transition phase for Nifty 50 companies, with short-term profit pressures from regulatory changes offset by improving revenue momentum and early signs of demand recovery.