Indian Companies Experience Slower Profit Growth in FY25 Amid Weak Demand

The financial year 2024-25 has seen a notable slowdown in profit growth for Indian companies, primarily due to weak demand and reduced capital expenditure. A report from Nuvama Research reveals that the profit after tax for firms in the BSE500 index grew only 10% year-on-year in Q4FY25, down from 21% in FY24. While some sectors like metals and telecom showed improvement, others, including public sector banks, faced declines. The cautious approach to capital expenditure reflects ongoing weak demand conditions, raising concerns about future earnings. As the outlook for FY26 remains uncertain, this year is characterized as a period of reconciliation for Indian corporations.

By Narendra Chaudhary Jun 9, 2025, 09:34 IST

Profit Growth Declines for Indian Firms

The financial year 2024-25 witnessed a slowdown in profit growth for Indian corporations, attributed to soft demand, lackluster top-line performance, and reduced capital expenditure, according to a report from Nuvama Research.

The report highlights that the total profit after tax (PAT) for firms listed in the BSE500 index (excluding Oil Marketing Companies) saw a mere 10% year-on-year increase in Q4FY25, and a 9% rise for the entire FY25, a significant drop from the 21% growth recorded in FY24.

It was noted that the PAT growth for BSE500 (excluding OMCs) in Q4FY25 reached 10% YoY, an improvement from 8% in Q3FY25, despite a weak top line, driven by cost rationalization and a low base effect.

Sector Performance and Capital Expenditure Trends

In Q4FY25, profits increased by 10% compared to the same quarter last year, slightly surpassing the 8% growth observed in Q3FY25. This growth was primarily achieved through cost-cutting strategies, including a modest 5% rise in wage expenses, alongside the advantages of a low base.

While sectors such as metals, telecom, chemicals, and cement reported improved profits, areas like public sector banks and industrials, which had previously driven growth in FY24, experienced a decline.

Future Outlook for Indian Corporations

The report also indicated a notable decline in capital expenditure growth. Despite robust operating cash flows, the capital expenditure for Indian companies grew only 6% in the latter half of FY25, a stark contrast to the 20% growth seen in FY23 and FY24.

This cautious approach may be viewed positively from a governance and valuation perspective, but it also signals weak demand conditions that could jeopardize future earnings.

Mid and Small-Cap Companies Show Signs of Recovery

Mid- and small-cap (SMID) companies, which lagged behind large-cap firms for most of FY25, exhibited some profit recovery in Q4FY25, aided by cost management and a low base. However, their overall performance for the year was more in line with large caps, after having outperformed them in FY24.

The report characterized FY25 as a "year of reconciliation," where various trends from FY24 moderated. Profits, revenues, and capital expenditures all grew by approximately 8-10%, reverting to pre-COVID patterns. The outlook for FY26, however, remains uncertain, with earnings estimates for FY26 being downgraded by 2%, and one-year forward earnings per share (EPS) projections stagnating, mirroring trends observed prior to the pandemic.

Nuvama indicated that the market currently anticipates a 15% earnings CAGR for FY25-27, but highlighted potential risks stemming from weak demand, slowing credit growth, corporate cost-cutting measures, and uncertain export conditions. In conclusion, FY25 marked a period of slowdown for Indian corporations, with all key financial indicators aligning with a subdued top-line performance, and the outlook for FY26 remains cautious.