Despite a challenging environment, early birds recorded modest revenue increases while significantly enhancing their profits through strategic cost management and favorable input prices.
Cautious Optimism in the Stock Market Amid Earnings Reports
As earnings reports for the March quarter begin to surface, a cautiously optimistic tone is emerging in the stock market. Initial results indicate that companies have navigated a demand contraction during this period, although the recovery appears to be gradual.
Consumer Spending Still Lagging
Despite some signs of recovery, consumer spending has yet to show significant improvement following a lackluster third quarter. Recent global uncertainties have negatively impacted exports and strained businesses, according to insights from an unnamed financial professional.
An analysis of the first 184 companies to report their earnings indicates a modest year-on-year revenue increase of just 1.4%. This is a slight improvement from the 0.3% decline observed in the previous December quarter. Sequentially, revenues rose approximately 8%, albeit from a low base.
Expectations for Q4FY25
After disappointing performances in the second and third quarters, expectations for Q4FY25 have been adjusted downward, making the actual results appear either in line with or slightly better than forecasts.
India’s corporate sector has been grappling with a persistent slowdown in consumer demand, exacerbated by minimal government spending, high inflation rates, and stagnant wage growth. However, positive changes are on the horizon, as indicated by India’s GDP growth of 6.2% in Q3, a recovery from a seven-quarter low of 5.4% in Q2.
Influences on Economic Recovery
Retail inflation dropped to a six-year low of 3.3% in March, and government spending has increased since December, particularly in critical infrastructure sectors like defense and power. Industry experts are optimistic about a revival in spending among the urban middle class in FY26, following tax relief measures introduced in the Union Budget.
“Markets are currently in a transitional phase. We are moving from extreme macroeconomic uncertainty to uncertainties surrounding earnings, which are expected to clarify over the next few quarters,” remarked an unnamed professional.
Trade Negotiations and Internal Policies
India is actively pursuing a trade agreement with the United States, aiming to navigate the ongoing tariff wars. Additionally, the government has initiated tax cuts and increased spending, although these efforts will take time to reflect in corporate earnings.
The outlook for the June quarter (FY26) remains subdued, with expectations for gradual improvement only in the subsequent September and December quarters, assuming global conditions stabilize.
Geopolitical Tensions Impacting Market Sentiment
Recent tensions between India and Pakistan, following a tragic terror attack in Pahalgam that resulted in 26 fatalities, have further contributed to market unease. Investors are closely monitoring the situation, particularly regarding potential military actions and border restrictions.
Despite these challenges, there is a silver lining: India Inc. saw profit margins expand by 140 basis points in Q4 compared to the previous year, although they remained flat sequentially at 14.6%.
Corporate Profit Trends
Interestingly, corporate profits demonstrated a faster growth rate of 12% year-on-year in the March quarter, despite slowing demand, although this was a slight decline from the 13.7% growth seen in the preceding quarter. Cost-control measures and favorable raw material prices, especially in the latter half of the quarter, have contributed to improved profitability for many companies, excluding those in the banking, financial services, and insurance (BFSI) sector.
The BFSI sector mirrored this trend, reporting a 1.7% decline in total income yet a 9.2% increase in net profits compared to the previous year. While moderating credit growth has affected net interest income, banks have benefited from exceptional gains in treasury income due to declining yields on government bonds. Non-bank financial companies have also capitalized on lower interest rates, which have reduced borrowing costs.
Looking Ahead
“Following the recent reassessment of banking stocks driven by regulatory support, the broader rally in this sector may be nearing its end. The Reserve Bank of India has fostered a conducive environment for growth, but the focus will now shift to execution. Companies that execute their strategies effectively will be the ones rewarded,” noted the unnamed professional.
While regulatory boosts for BFSI companies may diminish in the near term, expectations remain positive. “I foresee the financial sector performing well, results from IT companies being varied, and consumer staples struggling in Q4,” he added.
“We might witness a slight decline in earnings per share for this quarter (Q4FY25), but this is unlikely to significantly affect stock prices, as we have already adjusted our earnings estimates downwards by 5-7% in anticipation of recent tariff announcements,” he concluded.
