The latest financial performance of Indian companies reveals that rising expenses have become a major challenge, limiting profit growth despite stable sales figures. Experts attribute this slowdown in profits to higher raw material costs and increased operational expenses, dampening market sentiment.
While the stock market has been under pressure from geopolitical tensions in West Asia and concerns around China’s economic steps, weak quarterly results have further weighed on investor confidence.
Q2 FY25: Sales Growth Steady, But Expenses Surge
According to Bank of Baroda Research, a sample of 502 leading listed companies showed that their sales grew by 7% in the July-September quarter of FY25, reaching ₹11.12 lakh crore. This is only slightly better than the 6.8% growth recorded in the same quarter of the previous financial year (FY24). However, the real issue lies with a 10.3% jump in expenses, which has squeezed profits.
Madan Sabnavis, Chief Economist at Bank of Baroda, explained, “The overall corporate performance in Q2 FY25 shows that while sales grew modestly, increased expenses hit profit margins.”
A similar pattern is evident when banks are excluded from the analysis, as the remaining 479 companies saw just 5.7% sales growth—though this is still higher than the 1.3% growth reported in Q2 FY24. However, expenses surged by 10.2%, compared to a 5.2% decline a year earlier. This eroded profit growth, with net profit increasing by a meager 1.2% to ₹92,812 crore, compared to ₹91,739 crore in the same period last year.
CRISIL’s Outlook: Lowest Revenue Growth in Four Years
A report from CRISIL highlights further concerns. An analysis of 435 companies indicates that overall revenue growth will slow to 5-7%, the lowest in the last four years. Pushan Sharma, Research Director at CRISIL, noted that sectors such as industrial commodities, investment, and construction are expected to grow by only 1% in the quarter.
On the profitability front, CRISIL expects an improvement, with margins likely increasing by 70 to 90 basis points despite the challenges.
Market Outlook: Profit Growth Key to Future Returns
With the market already trading at high valuations, experts believe that earnings growth will play a crucial role in driving future returns. Pranav Haridasan, MD and CEO of Axis Securities, said, “While we remain optimistic about the long-term growth of the Indian equity market, high valuations limit room for further market gains. In this environment, improving corporate profits will be essential for delivering better returns.”
The latest trends highlight the challenges facing Indian companies, where increased costs are outpacing sales growth, affecting profits and market sentiment. Investors will closely monitor how companies manage their expenses to maintain profitability in the coming quarters.
