Editorial. Weathering the storm – The Hindu BusinessLine

Corporate sector: Weathering the storm
| Photo Credit:
Rasi Bhadramani

The first set of results for the fourth quarter of FY25 indicate that India Inc. managed to weather global uncertainties rather well until the end of March 2025. After that, it has not been the same. With the trade war and other geopolitical headwinds entering the scene this fiscal, the outlook for the coming quarters looks challenging. Policymakers should, however, take note of the resilience displayed by domestic consumption-oriented sectors and provide support, in order to buttress overall growth.

The 1,107 companies which declared their fourth quarter results by mid-May, managed to retain revenue growth at 7.6 per cent — around the same level as the previous two quarters. Adjusted profit after tax for the same set of companies, at 12.9 per cent, showed a healthy improvement in the fourth quarter over the first three quarters of FY25. Excluding the BFSI (banking, financial services and insurance) sector, adjusted profit grew 15.8 per cent, indicating that the gradual decline in input prices and interest costs along with continued government spending had helped India Inc. Consumption-oriented sectors such as retail, hospitality and consumer durables, have reported robust growth in profitability. FMCG companies too have reported an improvement in Q4 revenue as well as profitability, led by rural demand.

But the deceleration in BFSI revenue and profit growth has weighed on aggregate profitability numbers. Pressure on net interest margin with the reduction in lending rates, coupled with lower credit growth, have hit earnings. It is just as well that the Reserve Bank of India has eased some of the macro-prudential tightening with respect to retail credit which was done over the last couple of years to rein in credit growth. Measures such as rolling back the risk weights on certain bank lending to NBFCs, introducing more lenient liquidity coverage ratio rules, proposing co-lending arrangements between banks and other financial service providers and postponing the implementation of the new project finance guidelines will help sectors such as real estate and auto, which depend on credit availability. While the auto companies have been able to declare good earnings due to sale of SUVs and electric vehicles, entry level vehicles are finding fewer takers. Similarly, real estate companies declared very weak earnings in the fourth quarter as home loan growth moderated.

Going forward, the disruptions in global supply chains due to the tariff negotiations is going to increase uncertainty for exporters. IT companies, which are already struggling with deceleration in revenue growth, are likely to face increased challenges due to this state of flux. In such an environment, it would be ideal to give continued policy support to improve domestic consumption. The income tax rate cuts announced in the last Budget could bolster consumption demand in the coming quarters. Other fiscal incentives can be considered to spur higher consumption. A new reality demands fresh responses all around.

Published on May 20, 2025