Indian Inc. sees Steady Q3FY25, Downgrade Ratio Worst Since Q1FY21

India Inc. Q3 Performance: As earnings season comes to a close in a turbulent macro environment, India Inc. managed to deliver steady results in Q3FY25. With no major surprises on the upside and downside both, analysts believe that the results were largely in-line with what the D-street had expected.

As usual, BFSI remained at the top, followed by IT, telecom, healthcare and capital goods. However, the overall performance of India Inc. was majorly hurt due to fluctuations in commodity prices, thanks to global uncertainty.

"Earnings for the Nifty50 rose 5% year-on-year (vs. our estimates of +5%). The aggregate performance was hit by global commodities (i.e., Metals and O&G). Excluding the same, the MOFSL Universe and Nifty posted 10% and 7% earnings growth vs. our expectations of +11% and +7%, respectively," Motilal Oswal stated in a report.

Large-cap companies delivered strong results with an in-line earnings growth of 5% YoY. Small-cap companies, on the other hand, witnessed a broad-based earnings decline. Interestingly, mid-cap companies stood out and delivered better-than-expected earnings growth of 26%, primarily led by financials.

Global uncertainty owing to Trump's re-entry in the White House, subdued domestic macros and stock valuation concerns weighed down the corporate earnings season heavily. The subdued investor sentiment was also quite visible in the performance of benchmark indices. On just year-to-date basis, Nifty50 has declined by more than 4.4%

The top 50 companies delivered a 5% year-on-year PAT (profit after tax) growth of 5%, marking the third consecutive quarter of single-digit profit growth since the pandemic.

The earnings downgrade ratio which compares the number of earnings downgrades to upgrades, stood at 0.3x, the worst since Q1FY21.

Road Ahead for India Inc.

While pain points continue to exist due to uncertainty playing out in the field, weakness in consumption levels coupled and volatile commodity prices have further dampened the outlook.

After a healthy 55% earnings CAGR (Compound annual growth rate) over FY19-24 by the MOFSL Banking universe, the tailwind is now tapering off with FY25 earnings growing at a healthy but relatively modest 14%, while FY25-27E CAGR is projected at 12% (within which FY26E growth is estimated at a mere 9%), the brokerage house said.

The current estimates for FY26 corporate earnings still look overestimated, considering the current macro and micro outlook. However, the recent correction in the broader market has already factored-in the potential disappointments in earning ahead, the brokerage house further said.