Q3 Earnings Growth Slows to 5.1% as IT Sector Weighs, Banks Provide Support
December quarter earnings reveal challenging corporate landscape with 5.1% aggregate profit growth across 159 companies, marking slowest expansion in nine quarters. IT sector posted first decline in eight quarters at -9.4% due to delayed client decisions and AI transition, while banking sector provided stability with 10.7% growth and 50% profit contribution.
*this image is generated using AI for illustrative purposes only.
The December quarter earnings season reveals a challenging landscape for Indian corporates, with aggregate net profit growth restricted to just 5.1% year-on-year across a sample of 159 companies. This marks the slowest growth in at least nine quarters and represents the second consecutive quarter of single-digit profit expansion, primarily weighed down by weak performance from top IT companies while banking and finance sectors provided crucial support.
Overall Market Performance Shows Deceleration
According to ET Intelligence Group analysis, the December quarter results demonstrate broad-based pressure on corporate profitability. Revenue growth remained subdued at 7.4%, marking the seventh consecutive quarter of single-digit expansion.
| Performance Metric | Q3 Performance | Trend |
|---|---|---|
| Net Profit Growth | 5.1% YoY | Slowest in 9 quarters |
| Revenue Growth | 7.4% YoY | 7th consecutive single-digit quarter |
| Operating Margin | 21.60% | Contracted 230 bps YoY |
| Sample Size | 159 companies | Consistent quarterly comparison |
The operating margin of the total sample contracted significantly by 230 basis points year-on-year to 21.60%, indicating widespread pressure on profitability across sectors.
IT Sector Faces First Decline in Eight Quarters
The technology sector emerged as the primary drag on overall performance, with 16 IT companies in the sample reporting a 9.4% year-on-year decline in net profit - the first drop in eight quarters. This decline reflects mounting pressure from delayed client decision-making and a strategic shift toward AI-driven technologies.
| IT Sector Metrics | Current Quarter | Previous Year | Change |
|---|---|---|---|
| Net Profit Growth | -9.4% YoY | Positive growth | First decline in 8 quarters |
| Revenue Growth | 7.7% YoY | Higher growth | 9th consecutive single-digit quarter |
| Profit Share | 25.60% | 29.80% | Lowest in 13 quarters |
| Revenue Share | 23.40% | 23.40% | Maintained |
The sector's challenges stem from delayed project execution as clients prioritize advanced AI technologies over traditional digital transformation projects. While top-tier companies have demonstrated agility in securing AI-related collaborations and reported strong deal momentum, execution pace remains a critical factor for future growth.
Banking Sector Provides Stability
Banking and finance companies delivered robust performance, recording their second consecutive quarter of double-digit profit growth at 10.7% year-on-year. This growth was supported by gradual stability in net interest margins, with interest income rising 3.5% year-on-year.
| Banking Performance | Q3 Metrics | Contribution |
|---|---|---|
| Net Profit Growth | 10.70% YoY | Second consecutive double-digit quarter |
| Interest Income Growth | 3.50% YoY | Gradual margin stability |
| Profit Contribution | 50.00% | Increased from 47.60% YoY |
The banking sector's contribution to the sample's net profit increased to 50% in the December quarter, up from 47.6% a year ago. Excluding banking and finance companies, the remaining sample reported flat net profit growth.
Individual Company Highlights
Several major corporations reported mixed results during the quarter:
| Company | Q3 Net Profit | Previous Year | Change (%) |
|---|---|---|---|
| HDFC Bank | ₹18,654 cr | ₹16,735 cr | +11% |
| ICICI Bank | ₹11,318 cr | ₹11,792 cr | -4% |
| Reliance Industries | ₹18,645 cr | ₹18,541 cr | +0.56% |
| Wipro | ₹3,119 cr | ₹3,344 cr | -7% |
HDFC Bank led private sector performance with an 11% profit jump, while ICICI Bank faced a 4% decline. Reliance Industries reported marginal growth of 0.56%, and Wipro experienced a 7% profit decline despite 6% revenue growth.
Market Outlook and Expectations
Excluding software companies from the analysis reveals a more optimistic picture, with net profit growth reaching 11.3% while revenue growth remained similar at 7.3%. Analysts expect growth momentum to improve in coming weeks as more companies from consumer-centric sectors and those with domestic exposure report their numbers.
At the beginning of the current results season, analysts had anticipated double-digit aggregate profit growth, driven by sectors including automobiles, banking and finance, cement, metals, and oil and gas. The actual performance suggests a more challenging operating environment than initially expected, with sector-specific headwinds impacting overall corporate profitability.
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