India Inc.'s Revenue Growth Seen At 7-8% In Q4 As Urban Demand Improves: ICRA

India Inc.'s revenue growth is likely to be sharper in the January-March period, as compared to the previous quarter, as urban demand has shown signs of improvement, according to ICRA Ltd.

The revenue is expected to grow by approximately 7-8%, led by "revival in rural demand and uptick in government spending", the ratings agency said in a release issued on Monday.

The recovery in the operating profit margins for India Inc. witnessed over the December quarter is likely to be sustained at around 18.2-18.4%, supported by an increase in demand, led by improved consumer sentiments, it said.

Coupled with lower interest costs owing to the recent repo rate cut, this will result in a "marginal expansion in the interest coverage ratio for India Inc. to ~4.6-4.7 times in Q4 FY2025, against 4.5 times in Q3 FY2025", it added.

ICRA's note assumes significance as the slump in urban demand has weighed heavily on the growth of several NSE Nifty 50-listed companies in the second and third quarters of the current fiscal.

After remaining sluggish over the last few quarters, "urban demand is expected to improve", aided by the sizeable income-tax relief in the Union Budget 2025, the monetary easing by the Reserve Bank of India, and the expectations of a moderation in food inflation, which would augment discretionary consumption, said Kinjal Shah, senior vice president and co-group head for corporate ratings at ICRA.

Notably, the income tax exemption limit was raised to Rs 12 lakh per year in the Budget announced on Feb. 1. This was followed by the RBI slashing benchmark lending rates by 25 basis points on Feb. 7.

Rural demand — which has been resilient despite the lull in urban consumption — is "expected to be upbeat" in the first half of calendar year 2025, according to Shah. This projection is driven by robust output for most kharif crops and the favourable outlook for the ongoing rabi season, he said.

ICRA, however, stated in its note that India Inc.'s revenue can be affected by "headwinds like the evolving global uncertainties, especially trade tariffs".

Cloud Over Private Capex

ICRA expects the private capital expenditure cycle to remain measured in view of the uncertainties around geopolitical developments and relatively subdued outlook on merchandise exports from India.

In the near-term, the key monitorables will be evolution of the global economic and political scenario, movement in foreign exchange rates, impact of US President Donald Trump's trade policies, pick up in government spending and a revival in the domestic urban demand.

Despite indicating measured growth in private capex, ICRA expects certain sunrise sectors such as "electronics, semi-conductors and niche segments within the automotive space like electric vehicles", to continue seeing a scale-up in investments, in line with the various production-linked incentives programmes announced by the government.

Corporate India's Q3 Performance

ICRA's analysis of the third quarter performance of 602 listed companies, excluding financial sector firms, revealed 6.8% year-on-year revenue growth, supported by improved demand across consumption-oriented sectors like consumer durables, fast-moving consumer goods, retail, hotels and airlines. However, a few commodity-oriented sectors like iron and steel witnessed some decline, following lower realisations, owing to weak global demand and influx of cheaper imports from China.

The sequential revenue growth remained modest at 3.5%, led by "continued slowdown in urban demand", although some recovery was witnessed due to the festive season, it added.

The ongoing geopolitical tensions continue to impact demand sentiments, especially for export-oriented sectors such as agrochemicals, textiles, auto and auto components, cut and polished diamonds, and IT services, the ratings agency added.