Profit Slump Chaos, India Inc.’s Q2 Earnings Take A Hit – What Investors Should Know

It’s been a tough September quarter for India Inc., marking the worst earnings season since early 2020. A whopping 36 companies from the BSE 500 saw their profits drop by more than 50% year-on-year (YoY).

Analysts are now warning that the market might start punishing bad news rather than overlooking it. Earnings upgrades have dried up, with the overall profit growth for Nifty 500 companies falling 1% YoY. Sectors like cement, telecom, retail, and oil & gas have been hit particularly hard.

The auto and banking sectors also showed signs of cracks, with growth and earnings quality taking a hit, while weak consumption demand became evident in urban markets.

Among the biggest losers, fuel retailers like IOCL, HPCL, and BPCL, Tata Motors, IDFC First Bank, and Info Edge all saw their profits drop by more than 50% YoY.

IOCL’s profit after tax (PAT) plummeted a staggering 98.61% YoY to just Rs 180 crore. Other companies like Devyani International, UPL, APL Apollo Tubes, Equitas Small Finance Bank, JK Lakshmi Cement, and Biocon reported profit drops of at least 90%.

IDFC First Bank took a heavy hit with a 73% YoY fall in PAT, and Tata Technologies wasn’t far behind with a 72% drop. Other companies like JSW Steel, Adani Power, TVS Holdings, and Prestige Estates also saw their earnings slide.

Top 10 Losers

In the battle of the biggest losses, debt-ridden Vodafone Idea took the top spot, posting a massive loss of Rs 7,176 crore in Q2. The next big loss came from NBFC Sammaan Capital (formerly Indiabulls Housing Finance) with a loss of Rs 2,761 crore. Even Indian Oil posted a loss of over Rs 1,100 crore.

Other big losers included Interglobe Aviation (which runs IndiGo), MTNL, Unitech, Mangalore Refinery, Chennai Petroleum, NMDC Steel, and the newly-listed Ola Electric.

With the profit pool shrinking across India Inc., Motilal Oswal downgraded the earnings of 121 companies by over 3%. Major downgrades included BPCL, IndusInd Bank, Ultratech Cement, Asian Paints, and Trent, all hit by a slowdown in consumption and weak government spending.

The Nifty50 saw a 4% YoY growth in PAT, but it’s the second consecutive quarter of single-digit growth, the first time since June 2020. Analysts point out that consumption has emerged as a major weak spot, while some segments of BFSI (banking and financial services) are dealing with asset-quality stress. Weak government spending has also contributed to the slowdown.

Despite the grim earnings season, Motilal Oswal remains cautiously optimistic, expecting a rebound in corporate earnings in the second half of FY25, driven by a strong kharif crop and improved rural demand. However, the Nifty EPS has been revised down by 7% over the last six months, lowering the expected FY25 earnings growth to just 5%—the weakest since FY20.

As a result of the weak earnings and declining cash flows, brokerages are cutting their Nifty target prices. Emkay lowered its target from 26,000 to 25,000, while Prabhudas Lilladher revised its target down to 27,381 from 27,867.

Despite these cuts, some analysts aren’t too alarmed. They believe the factors driving the slowdown—like weak consumption and slow government capex—are temporary, and expect a recovery in FY26. Emkay’s Seshadri Sen mentioned that their revised Nifty target of 25,000 still reflects a 3% premium to the 5-year average, supported by long-term growth prospects and India’s improving macro-financial resilience.

As part of a solid investment strategy, analysts recommend exiting stocks with weak earnings and building a new watchlist focused on those with strong earnings potential. “These stocks can become actionable opportunities once the Nifty resumes its upward trend,” says Anupam Singhi, CEO & Chief Investment Officer at O’Neil Capital Management.

Looking ahead, he expects a recovery in corporate earnings during the second half of FY25, driven by a rebound in government spending, improved rural demand following a strong Kharif harvest, and a stabilization of macroeconomic conditions. While challenges remain, these expected tailwinds could provide vital support to corporate earnings, offering a balance between short-term caution and medium-term recovery.

The downgrades have been more noticeable among large-cap stocks, with less impact on broader indices like the BSE 500 or small-caps.

Mihir Vora, CIO of Trust Mutual Fund, explains their approach: “We follow the Growth at Reasonable Valuations strategy, focusing on stocks where earnings growth is visible. We also keep a close eye on earnings upgrades or downgrades to ensure the momentum remains intact. To build our portfolio, we typically look for 50-60 stocks, and with a universe of 500-800 stocks to choose from, we find it relatively easy to identify solid opportunities.”