Cost cuts and smart capex kept India Inc’s bottom line strong in FY25. Will demand catch up now?

In spite of geopolitical tensions, inflationary pressures, global tariff war ignited by US President Donald Trump and tepid urban demand, corporate India is in a good shape on the most important parameters—balance sheets, profitability and credit quality. Companies listed on the domestic bourses reported a record net profit of nearly Rs 17 lakh crore in the previous financial year on highest-ever gross sales of almost Rs 180 lakh crore compared to consolidated profit and gross sales of Rs 15.2 lakh crore and Rs 165 lakh crore, respectively, in FY24.

However, the profits were driven by cost control and lower capacity utilisation. Capital expenditure (capex) was primarily driven by the government, while private capex remained subdued, five years after the government reduced the corporate tax rate from 30% to 22% if the company does not avail any tax exemption or incentive. Yet, key financial metrics indicate India Inc emerged resilient in FY25.

While sales growth slowed to 7.7% in FY25 (from 8% in FY24 and double-digits before), several indicators—from net profit margins to debt ratios—suggest that Indian corporates are well-placed to navigate global headwinds. The corporate profit-to-GDP ratio was at a 14-year high of 5.1%, compared to 5% in FY24 and 4.4% in FY23.

“Corporate earnings, as a percentage of GDP, are on an upward trend. Indian corporates remain less leveraged, with no significant rise in debt levels. Most of the capex is being funded through internal accruals or equity issuance. Overall, the health of domestic corporates still looks strong, especially considering the global backdrop,” says Hitesh Jain, Strategist, Institutional Equities Research, YES Securities.

Post-Covid Recovery

Over the past five years, Indian companies have improved their ability to meet debt obligations. As per the Bank of Baroda’s economics research department, the interest cover ratio, defined as PBIT to interest payments, showed a continuous increase from 3.77 in FY20 to 6.78 in FY25. In the past three years, the gross debt of India Inc (ex-BFSI) has declined by 45% to Rs 44 lakh crore from Rs 80 lakh crore in FY22.

Experts believe that while rising crude prices may pose near-term risks to inflation and private capex recovery, Indian corporates are better positioned now to navigate external shocks. After falling around 1.5% in 2024, Brent crude oil prices have advanced nearly 4% in 2025 so far.

India has been relatively insulated from geopolitical tensions by virtue of being one of the largest and fastest-growing economies. India’s neutral position towards geopolitical tensions has shielded it from adverse effects, say experts. Yet, Indian companies are susceptible to supply chain disruptions because of import dependence.

“The ban on export of rare earth magnets by China has made our auto companies anxious. The only way to mitigate supply chain issues is to diversify your suppliers and encourage domestic production of such input factors, and this takes years to fructify,” says Ashwin Patni, head of wealth management solutions at Julius Baer India

Despite the geopolitical uncertainties, Indian companies managed to hold their ground. “The balance sheet of India Inc. is in the pink of health following the deleveraging of the last several years. Cost of capital has declined thanks to the dovish monetary policy of the central bank which, in turn, has been facilitated by declining CPI (consumer price index) inflation,” says VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

According to data from ICRA, credit growth in the banking sector remained stable, and non-performing assets (NPAs), especially in public sector banks, were at multi-year lows.

Profitability And Sales

Net profit of India Inc continued to grow in double digits despite muted top-line growth. The consolidated bottom line of listed companies grew 10% in the previous financial year compared with 28% and 13% in FY24 and FY23, respectively. The net profit of Nifty 50 companies grew 10% in FY25 as against 23% in the previous financial year.

Neeraj Chadawar, Head of Fundamental and Quantitative Research, Axis Securities, says the earnings would have been far better but for several factors: a mild slowdown in government capex (due to general elections), weaker urban consumption, tighter liquidity and inflation concerns. However, steps by the Reserve Bank of India (RBI), such as reduction in the repo rate by 100 basis points since February 2025, and policy measures by the government, are expected to help the companies this year. “In FY26, we expect earnings growth of up to 12% for Nifty50 companies,” he says.

But one area that reflects the cautious mood of corporate India is top-line growth. FY25 was the second straight year of single-digit sales growth, 7.7%, compared to 8% in FY24. Analysts attribute this to structural and cyclical challenges.

“Weak rural and urban demand weighed on fast-moving consumer goods (FMCG) and discretionary consumption players. Export-oriented sectors faced headwinds from global slowdown, destocking and geopolitical tensions. Commodity-linked sectors like metals and chemicals saw their revenue hit by falling prices despite volumes,” says Ajit Mishra, SVP-Research at Religare Broking.

A high base due to post-Covid rebound and pricing pressures also hit sales. Employee expense growth was 7%, the lowest in four years compared to 13–16% in the previous three years, reflecting cautious hiring amid global uncertainties.

“As normalisation ensued in the years post Covid, employee expense growth also plateaued. We saw macro slowdown over the past couple of years, stagnant salaries and fewer job opportunities for freshers. The onslaught of AI has improved the productivity of existing employees in many sectors, resulting in less employee headcount growth. Many roles have also been eliminated,” says Patni.

Sectoral Breakdown

Sectors like real estate, defence, healthcare and financial services reported strong earnings, while FMCG and information technology (IT) remained under pressure. Real estate, in particular, has benefitted from favourable financing and increased demand after the pandemic. Defence has been bolstered by rising budget allocations and the government’s push for indigenisation.

The combined net profit of real estate companies grew by more than 30% in FY25 compared to 75% in FY24 and 5.4% in FY23. “Strong project launches and sustained demand, especially in premium and luxury segments, have driven earnings recovery for the sector. Rising disposable incomes and an increase in the number of dual-income households are also boosting demand for mid-income housing,” says Rahul Singh, CIO-Equities, Tata Mutual Fund. He believes the recent rate cut environment is supportive, while continued government spending should indirectly benefit the sector in FY26. Further, urbanisation is accelerating, especially in Tier II and III cities, which should drive the next wave of real estate demand.

On the other hand, the combined profit of defence firms increased nearly 18% in FY25 as against 39% in FY24 and 12% in FY23. “Driven by a steady rise in orders, the government’s push for indigenisation and growing export opportunities, defence companies have delivered robust numbers,” says Devarsh Vakil, Head of Prime Research, HDFC Securities.

The combined net profit of FMCG companies hit a record high of nearly Rs 74,000 crore in FY25, as against Rs 55,000 in FY24. The sector witnessed the highest profit growth in at least five years. “India’s consumption story is structural. With the world’s largest and youngest population and rising incomes, demand continues to grow across rural and urban markets. Beyond staples like detergents and home care, faster growth is coming from evolving segments such as personal care, snacking, beverages, ready-to-eat, and eating out,” says Singh. Good monsoons last year, as well as this year, have brought back rural demand, boosting FMCG, which was struggling post-pandemic.

But the IT sector is struggling. The combined revenue of all players increased just 5% for the second straight year. Vakil of HDFC Securities has a cautious view and says the sector is facing significant headwinds from escalating tariff wars and trade tensions, which ate threatening to disrupt cross-border operations and increase costs for companies heavily reliant on global delivery models and H-1B visa programmes. The rapid advancement of artificial intelligence (AI) poses an existential challenge to traditional IT services business models, as AI-powered automation threatens to replace routine coding, testing, and maintenance tasks that form the backbone of many service contracts.

Capex Cycle

In spending, government-led capex continued to be the primary avenue for asset building in FY25, as it has been over the last three years. However, public spending slowed in H1FY25 due to election-related constraints. A full-fledged and sustained rebound in private sector capex was missing despite the government’s nudge.

As per the CMIE Economic Outlook, the value of projects completed by the private sector stood at Rs 2.7 lakh crore in FY25, down 25% YoY. The number was Rs 3 lakh crore for the public sector, down 49% YoY. Several experts expect private capex to pick up in FY26, backed by strong balance sheets, declining interest rates, and improving consumption.

“With the RBI cutting repo rates by 100 bps and a 50 bps cash reserve ratio (CRR) cut expected to improve liquidity, the environment is ripe for the private capex to rise,” says Chadawar. “We could see an uptick in private capex over the next 12-18 months, driven by falling cost of capital, improving credit growth, economic momentum, and sound balance sheets. A pick-up could be visible once the uncertainty over the Trump tariff subsides.”

According to Jain, capacity utilisation for many manufacturing companies is currently around 75%. Unless this reaches above 80%, or there is a significant and broad-based recovery in private consumption, large-scale private capex is unlikely.

“From the second half of FY26, we could see a more meaningful recovery in overall consumption. This, in turn, should gradually lead to higher capacity utilisation and eventually trigger private capex—possibly by late FY26 or FY27—as rising demand justifies new investments,” he says.

The RBI’s surprise 50 bps rate cut in June 2025, combined with additional CRR cuts, has improved market sentiment. Analysts believe that liquidity is expected to remain strong, supporting credit growth, particularly in the second half of FY26. The Union Budget for FY26 also announced tax relief for the middle class and increased allocations for rural infrastructure and consumption-boosting schemes. The fiscal deficit target has been revised to 4.4% (from 4.8% earlier), indicating a balance between discipline and stimulus.

“The government is consciously shifting towards supporting the rural and middle-class economy to stimulate consumption. This is a key driver for sustaining the broader recovery,” says Chadawar.

Road Ahead

While profitability remains , balance sheets are healthier and macro indicators, coupled with government at the Centre, point toward a supportive policy environment, challenges remain. The headwinds include global geopolitical uncertainty, crude oil price volatility, tariff concerns, and muted urban consumption.

“After a phase of consolidation in FY25, we expect FY26 to be a year of revival,” says Gopal Jain, Managing Partner, Gaja Capital. “Public capex is expected to drive FY26 GDP growth to 6.3-6.5%, though private investment revival remains crucial, and consumption needs a boost. Manufacturing and construction look set for 8-10% earnings growth, supported by PLI schemes and government contracts.” Experts believe the earnings trajectory will improve in FY26. Financials, infrastructure, auto, and cement sectors are expected to lead the growth with double-digit earnings. Meanwhile, IT, FMCG, and pharma may post modest single-digit growth. In short, sectors driven by India’s domestic growth story are likely to be in a sweet spot in the coming year.

@iamrahuloberoi