Slowdown suspense: India Inc trails without a macroeconomic crisis

Companies are struggling to improve revenue and profit even as there's no macroeconomic crisis. Sectors as varied as consumer goods and cement are affected

Perhaps for the first time in many years, corporate India is facing a growth crisis without the country being in any kind of macroeconomic trouble. Consider this: The combined revenue of BS1000 companies was up just 3.7 per cent in 2023-24 (FY24), a sharp decline from 22.7 per cent growth in FY23 and the lowest in the last three years. The trend continues in FY25 as well, with the combined revenue of early-bird non-BFSI companies up just 5.7 per cent in the first nine months of FY25. BS1000 companies’ revenue has either shrunk or grown in low single digits in four out of the last six financial years and six out of the last 11 years. (BFSI stands for banking, financial services and insurance).

 

The revenue slowdown had a knock-off effect on corporate earnings. The combined net profit of non-BFSI listed companies is up just 0.6 per cent year-on-year (Y-o-Y) in the first nine months of FY25, a sharp decline from 31.4 per cent Y-o-Y growth in the combined net profit of BS1000 companies in FY24.

 

BS1000 comprises the top listed companies, excluding those in banking, non-banking finance, insurance and stock broking.

 

 

GDP & corporate growth

 

In contrast, the headline economic growth remains healthy and it actually improved in FY24. According to the latest estimates by the National Statistical Office (NSO), India's gross domestic product (GDP) at constant prices grew at a 20-year high of 9.2 per cent in FY24 up from earlier estimates of 8.2 per cent and a big improvement from 7.6 per cent in FY23. The economy is expected to grow by 6.5 per cent in FY25, higher than the 10-year average GDP growth of 6 per cent.

 

For comparison, India's GDP at current prices, also called nominal GDP, grew by 12 per cent in FY24, down from 14 per cent reported in FY23. The nominal GDP growth rate is now expected to grow by 9.9 per cent in FY25, according to the second advance estimate by NSO.

 

Prior to this, corporate revenue growth had slipped into single digit on only two occasions – in FY10 and FY11 – in the aftermath of the 2008 global financial crisis (GFC). Even after the 2012 euro zone crisis and 2013 taper tantrum, BS1000 companies had managed to grow their combined revenue in double digits — 10.1 per cent and 11.6 per cent — in FY13 and FY14, respectively.

 

The growth logjam for India Inc, without a macroeconomic crisis, has created a dichotomy for businesses, and companies may need a new tool kit to come out of it and regain their growth momentum.

 

In the past, BS1000 companies faced growth headwinds only during periods of global or domestic macroeconomic turmoil. These crises usually led to a sharp deceleration in corporate revenue and profit growth. The historically strong link between GDP and corporate performance has weakened in recent years and single-digit growth in corporate revenue is becoming a norm despite relatively healthy economic growth.

 

In the last ten years (FY14-24), the combined revenue of BS1000 companies rose at a compound annual growth rate (CAGR) of 8.2 per cent: From ₹55.9 trillion in FY14 to ₹123.4 trillion in FY24. This is nearly half the growth seen in the previous 15 years: The combined revenue of BS1000 companies grew at a CAGR of 17.1 per cent between FY99 and FY14 — growing from ₹5.24 trillion to ₹55.9 trillion. Similarly, the CAGR in net profit slowed to 11.3 per cent during the FY14-24 period from 19.4 per cent seen during FY99-FY14.

 

The sharp corporate slowdown, especially in recent times, has occurred without any dramatic decline in India's headline GDP growth. India's GDP at constant prices grew at 6 per cent on average from FY14 to FY24, around 100 basis points (or 15 per cent) lower than the 7 per cent average GDP growth seen between FY2000-2014 period. Similarly, growth in nominal GDP slowed to 10.1 per cent during FY14-24, nearly 350 basis points lower than the 13.6 per cent average growth from FY2000 to FY14. Real growth is calculated by subtracting GDP price deflator, or inflation, from the growth in nominal GDP. One basis point is one-hundredth of a percentage point. 

 

Weakening link

 

Analysts attribute the growing dichotomy between corporate growth and underlying GDP to a weakening of the link between the two in recent years.

 

“The growth elasticity of the corporate sector with respect to the GDP growth has weakened significantly in recent years and it doesn’t resonate with the corporate numbers anymore. In recent quarters, non-financial sectors have struggled to grow even as the headline GDP growth has been surprisingly strong,” said Dhananjay Sinha, co-head, research and equity strategy, Systematix Institutional Equity.

 

Companies slowing down despite relatively robust headline economic growth had led some experts to question the GDP numbers. “A sharp decline in corporate growth elasticity in recent years suggests that either listed companies have failed to take advantage of the growth opportunity in the economy or the GDP numbers are overstated,” said Sinha.

 

According to Sinha’s calculation, India’s nominal GDP grew at an annualised rate of around 6.9 per cent in FY15-14 (against NSO estimates of 10.3 per cent) based on the non-BFSI companies’ revenue growth and their growth elasticity during the FY99-14 period. This translates into a GDP growth rate of around 2.7 per cent in the last ten years (against the NSO estimate of 6 per cent growth) given the GDP deflator of 4.3 per cent for the period.

 

Others, however, explain the growing dichotomy between the corporate sector and GDP growth to the changes in the sectoral composition of the Indian economy. “The buoyancy in GDP is not visible in the numbers of listed companies as other sectors such as agriculture, government sector and smaller and unlisted firms have grown at a faster pace in recent years,” said Madan Sabnavis, chief economist at Bank of Baroda.

 

The consumer goods sector is one of the worst affected by the slowdown, and companies attribute this to weak private consumption. “Private consumption grew by only 3 per cent in FY24 — its slowest pace in two decades. The weakness in consumption was reflected in the muted volume growth of the FMCG sector (FY24 volume growth of around 3 per cent against 7 per cent per annum on average in the pre-pandemic period),” said ITC in its annual report for FY25.

 

Others blame the slower growth in the non-BFSI sector on the growing financialisation of the Indian economy. “The manufacturing and industrial sector has grown at a slower pace in recent years, leading to a decline in their contribution to India’s GDP. In contrast, the banking and financial sector has grown at a rapid pace in recent years,” said G Chokkalingam, founder & chief executive officer (CEO), Equinomics Research.

 

The BFSI sector has grown a bit faster than the rest of the economy but its contribution to the GDP is small and it alone cannot explain the dichotomy between the GDP and corporate sector growth. According to data from the Asian Development Bank, financial and insurance (BFSI) activities expanded at a CAGR of 10.4 per cent between FY14 and FY24, just 30 basis points faster than the  GDP growth rate at current prices during the period. As a result, the BFSI sector’s contribution to India's GDP increased marginally from 5.34 per cent in FY14 to 5.44 per cent in FY24.

 

The combined revenue of FMCG companies, which are part of BS1000, grew by 8 per cent in FY24, down from 18.8 per cent in FY23. The sector’s growth declined further to 6.7 per cent Y-o-Y in the first nine-months of FY25 (9M FY25). A similar slowdown in growth is visible in other consumer-oriented sectors such as automobiles: 6.3 per cent in 9MFY25 from 21.4 per cent in FY24. The numbers for cement companies also indicate a moderation in construction, hinting at a decline in building new homes. Cement companies’ combined revenue growth decelerated from 12.8 per cent in FY23 to 5.7 per cent in FY24, and further to -3.6 per cent (negative growth) during 9M FY25. A slowdown in construction has a cascading effect on many related sectors such as paints, tiles, home appliances, electrical goods and construction steel, among others.

 

The export-intensive information technology (IT) services sector is also experiencing a slowdown after the post-pandemic boom in demand petered out. IT services companies’ combined revenue was up 6.3 per cent in 9M FY25, similar to the growth in FY24. In all, 27 out of 44 sectors that are part of BS1000 reported negative or single-digit revenue growth in FY24, compared to just 8 sectors that witnessed such a muted performance in FY23.

 

The slowdown in corporate growth and earnings is causing concern in corporate boardrooms, and it is now a key topic of discussion in their annual reports or post-earnings interaction with market analysts. 

 

“The year saw strong consumption demand after Covid tapering down due to the continued effect of high inflation, especially in rural areas. This led to the revenue growth trajectory moderating to low single digits – for the industry as well as for us,” said Asian Paints Managing Director (MD) and CEO Amit Syngle in the company’s annual report for FY24.

 

HUL, the country’s largest FMCG company, also flagged the issue of a tough macroeconomic environment. “In the FY24, your company continued to deliver a resilient performance in a challenging business environment. At the same time, uneven rainfall resulted in subdued agricultural output and affected rural demand,” said HUL chairman Nitin Paranjpe in the company’s annual report for FY24.

 

HUL reported a further slowdown in demand in FY25. “Total FMCG volume growth has slowed over the last 6 months, indicating subdued demand. Within this, urban growth continues to moderate while gradual rural recovery is sustained,” said the company’s MD & CEO Rohit Jawa in the analysts’ meeting after HUL’s results for Q3 FY25.

 

Building materials major Shree Cement attributed the demand slowdown to a dip in manufacturing activity. “The Manufacturing PMI hit an eight-month low in September and the core sector output shrank by almost 1.8 per cent in August. These conditions created a weaker demand scenario across sectors, including building materials and cement, housing sales, and new launches fell during Q2,” said Shree Cement MD Neeraj Akhoury in the company’s earnings conference call after its results for Q2 FY25.

 

The demand slowdown and its impact on corporate growth have forced companies to scale back their capital expenditure plans. Capex by non-BFSI companies slowed in FY24 after gaining traction in FY23. The combined fixed assets of India’s top listed non-BFSI companies increased by just 7.6 per cent in FY24, down from 12.2 per cent Y-o-Y growth in FY23.

 

The capex slowdown is likely to persist as companies battle demand slowdown and muted revenue growth.

 

“We are going to take the capex break now. We have put up new plants and will try and keep new investments as low as possible, unless there is a volume increase,” said Britannia Vice-chairman and MD Varun Berry during the company’s earnings call after its Q3 FY25 earnings.

 

However, despite a slowdown in their revenues and earnings, most business leaders continue to be optimistic about India’s growth. 

 

Positive outlook

 

“Notwithstanding the near-term challenges, India’s economic outlook remains bright with the country continuing to be the fastest-growing major economy in the world with significant headroom for growth over the medium and long-term,” said ITC during its earnings presentation for Q3FY25.

 

Similarly, AV Birla Group Chairman Kumar Mangalam Birla remains bullish on the Indian economy. “India’s economy has shown resilience, with real GDP growth of 8.2 per cent in 2023-24, which makes it the fastest-growing major economy and the fifth-largest globally,” said Birla in UltraTech Cement’s annual report for FY24. UltraTech is India’s largest cement company and the most valuable in the AV Birla group.

 

In contrast to business leaders, market analysts seem to have turned cautious and there have been earnings downgrades for FY25 and FY26 after India Inc disappointed in the first nine months of FY25. “For the Motilal Oswal universe, the earnings upgrade-to-downgrade ratio has turned weaker for FY26 as 37 companies’ earnings have been upgraded by more than 3 per cent, while 137 companies’ earnings have been downgraded by more than 3 per cent. Our universe companies’ earnings for FY26 have seen a 1.8 per cent decline (from earlier estimates),” wrote analysts at Motilal Oswal Financial Services in their earnings review for Q3FY25.

 

Now, it has to be seen how corporate India closes the growing divergence between their financial performance and GDP growth.