India Inc profit growth slows down in fourth quarter amid uncertain economic environment

By | May 29, 2025

Overview of Q4 Earnings

India Inc’s aggregate profit growth in Q4 FY25 was under 6% year-on-year, a sharp deceleration compared to previous quarters. This slowdown has exposed underlying vulnerabilities in the economy, raising questions about the sustainability of recent stock market gains. While some sectors showed resilience, others struggled with weakening demand, rising costs, and geopolitical uncertainties.

Sector-wise Performance

Information Technology (IT)

The IT sector, traditionally a strong performer, showed signs of strain in Q4. Infosys, one of the largest players, reported a 3.2% revenue decline compared to the previous quarter. The slowdown was attributed to unplanned project ramp-downs and delayed client decisions, reflecting cautious business spending in a volatile environment.

Consumer Goods

Consumer-facing companies like Hindustan Unilever and Bata India experienced declining profits due to subdued urban consumer demand. Inflationary pressures and stagnant wage growth have dampened purchasing power, negatively impacting sales volumes and margins in this sector.

Banking and Financial Services

The banking sector offered a relatively brighter picture, with public sector banks posting an 11% year-on-year increase in earnings. This resilience stemmed from improved asset quality and increased credit demand, supporting overall corporate profitability.

Steel and Manufacturing

Steel Authority of India (SAIL) reported a 13% decline in profit, impacted largely by rising inventory costs and fluctuating raw material prices. The manufacturing sector broadly faced margin pressures due to higher input costs and subdued domestic demand.

Key Macroeconomic Challenges

Several overarching factors contributed to the slowdown in corporate earnings growth:

  • Rising Input Costs: Escalating raw material prices squeezed profit margins across industries, especially in manufacturing and consumer goods.
  • Weak Consumer Demand: Inflation and stagnant wage growth restrained household spending, particularly in urban areas, weakening revenue growth for consumer companies.
  • Geopolitical and Policy Uncertainty: Ongoing global tensions and evolving trade policies created uncertainty, leading to cautious corporate investment and hiring decisions.

Outlook for FY26

Looking ahead, analysts expect the growth environment to remain challenging in the near term:

  • Muted Growth in Early Quarters: Q1 FY26 earnings growth is likely to remain subdued due to continued economic uncertainty and cautious consumer behavior.
  • Potential Recovery in Second Half: A pickup in government spending and easing inflation could stimulate demand, providing a boost to corporate earnings in the latter half of the fiscal year.
  • Sectoral Divergence: While banking and pharmaceuticals may maintain momentum, sectors like IT and consumer goods might face ongoing headwinds.

Conclusion

The slowdown in India Inc’s profit growth during Q4 FY25 highlights the complex challenges faced by companies amid an uncertain economic environment. Rising costs, sluggish consumer demand, and geopolitical risks have collectively weighed on earnings growth. Although certain sectors remain resilient, the overall outlook calls for cautious optimism, with recovery contingent on improved macroeconomic stability and consumer confidence.

As the economy navigates these headwinds, India Inc’s ability to adapt and innovate will be crucial for sustaining growth in the coming quarters.