Corporate India likely to post higher growth in Q3 than the first half of FY25, says RBI

India’s economic growth is poised to rebound as domestic demand is regaining strength. There are early indications that Indian companies may post much better revenue and earnings growth in the third quarter of FY25 compared to the first two quarters, said the Reserve Bank of India (RBI) in its monthly bulletin released on Friday, January 17, 2025.

The central bank further added that rural demand continues to gain momentum, reflecting resilience in consumption supported by brighter agricultural prospects.

“There is a conducive quickening of high-frequency indicators of economic activity in the second half of FY25” implying a pick-up in real GDP growth for this period, according to the RBI.

Additionally, a revival in public capital expenditure (capex) on infrastructure is also likely to stimulate growth in key sectors. However, even though the headline inflation has eased for the second successive month in December, the stickiness in food inflation warrants careful monitoring of second-order effects, it added.

According to estimates by various brokerages, the combined net profit of Nifty50 companies may grow at its fastest rate in the December quarter, augmented by robust growth by banking, finance and insurance companies. Interestingly, unlisted companies are likely to outpace their listed counterparts with faster revenue growth.

For instance, Reliance Industries reported better-than-expected earnings in Q3, with shares surging nearly 5% in intra-day trade. Analysts at Citi observe that, after a subdued performance in recent quarters, the company delivered a strong beat in the December quarter, with the rebound in retail performance being the key highlight, followed by a better oil-to-chemicals show. “Overall, we are enthused by the strong performance in Q3, especially in retail—softness in this segment has been a key drag on stock performance and investor sentiment, which we believe should now reverse,” wrote Citi in an investor note.

According to the RBI, private final consumption is the brightening spot in the economy, driven by e-commerce and quick commerce, among which it is important to foster competition rather than being restrictive. However, rising input cost pressures in the manufacturing sector, coupled with weather-related issues and global headwinds, pose risks to this outlook.