India Inc’s profit growth, while maybe unexciting, is nevertheless ongoing after challenges in the first two quarters of the year, as can be inferred from the 1,107 companies that have reported results till May 15, 2025 (source: Capitaline database). However, it is worth noting that sectors that were riding high, like banks, are normalising on a high base, and sectors that were impacted – FMCG and building materials – are witnessing a modest recovery. For example, the 8.5 per cent y-o-y growth in PAT for the banking sector is well below the PAT growth in the range of 14-18 per cent in the previous three quarters (cumulative for the same set of companies). On the other hand, 5.2 per cent y-o-y growth in PAT for the FMCG sector reflects some recovery after flat/marginally negative growth in the previous two quarters (although still below 12 per cent growth in Q1FY25). Looking ahead, refineries and telecom are expected to fare much better, and IT could fare worse than in previous years, owing to tariff uncertainty, while pharma may not be impacted. Moderating growth In the case of banks, Interest margin compression from rate cuts has started, but bulk of the impact would be dependent on rate cuts expected in FY26. Credit growth which has been moderating through the year will need corporate capex revival to supplement retail loan growth. Encouragingly, the corporate credit demand seems positive so far. Healthy asset quality is a clear positive for the sector. Automobiles continued to report top and bottom-line growth in Q4FY25 from volume and pricing-based growth. But moderation in volume and profit growth can be expected from FY26 on a high base after the strong post-Covid recovery. Premiumisation continues with EV share and premium SUV share increasing. Export market growth could also hold up domestic moderation. Recovering, yet still weak FMCG continues to report weak volume growth. The high competition in the sector is also limiting price pass through. Urban demand revival is central to growth outlook even as rural growth is encouraging. Looking ahead there are some positive tailwinds from strong agri outlook, moderating food inflation and personal income tax cuts. Building materials, including steel and cement continue to report weak performance in Q4. Cement demand growth was at 4-5 per cent in FY25. Pricing remains subdued with marginal improvements in the last two quarters. Steel sector had to bear the brunt of low steel realisations which remain at trough levels amidst pressure from imports. However both sectors are expected to fare better in FY26. This is given the expected recovery in the capex cycle after a slowdown last year due to elections, anti-dumping duties to protect steel realisations and scope for improving profitability. The two leading players, Ultra Tech and Ambuja, are riding on industry consolidation, organic expansion and an increasing share of renewable energy mix in production. Left and right tail Improved gross refining margins (GRM) in Q4, following contraction in earlier quarters, have aided the refineries segment, which posted its first y-o-y profit growth in a year. Excess global refining capacity is slowly closing, and demand is stabilising. The crude costs have also declined post-March 2025, which will allow marketing companies to make a higher spread, but inventory losses can offset this to an extent. Similarly, ARPU growth is benefiting the telecom industry, with Bharti and Reliance Jio continuing to thrive, at the cost of Vodafone Idea. Tariff uncertainty is impacting revenue and profitability oulook for IT companies. TCS and Infosys have pointed out to deal slippages or project ramp down resulting in expectations of low single-digit revenue growth. With tariff negotiations ongoing and some announcements made, investors need to monitor whether this translates into an improvement in demand environment. This is subject to US economy staying the course. Pharmaceuticals, on the other hand, may not be impacted by US tariff flip-flops and the recent MFN (Most Favoured Nation) announcement in the US. The segment, though, will face a significant loss of revenue in the next one year – gRevlimid (high-value opportunity), but companies can look forward to the gSemglutide opportunity opening in the same period. A silver lining is India Inc’s strong balance sheet, indicated by an average interest coverage ratio at a high of 6.1 times at the end of Q4FY25. A revival in consumption and global economic activity may spur companies to leverage the balance sheets for higher growth, which otherwise seems to be moderating. Published on May 17, 2025