Experiencing a prolonged period of discomfort or difficulty
Indian companies outside the IT sector are facing a challenging growth environment during the Q1 earnings season, as a combination of demand slowdown, cautious credit lending, sluggish capital expenditure, export headwinds from US tariffs, and global trade uncertainties restrain growth momentum.
One of the primary headwinds is the slowing overall revenue growth and demand moderation across key non-IT sectors. Listed companies' revenue growth has decelerated to 4–6%, the slowest in nine quarters.
Another issue is the muted credit growth and cautious lending by banks. Private sector banks' profit growth has slowed to 2.7%, indicating subdued credit expansion and risk aversion among lenders and borrowers.
Export challenges due to US tariffs are also affecting several labor-intensive sectors, including garments, textiles, shrimp, jewellery, engineering goods, and high-value manufacturing ambitions like electronics. A new 25% reciprocal tariff is projected to lead to a ~30% decline in Indian exports to the US from $86.5 billion to about $60.6 billion in 2025-26.
Global uncertainties and trade tensions, including geopolitical volatility and slowing demand in key export markets like the US, are further complicating the situation.
Slow private sector capital expenditure is another concern, with overall growth in capital spending described as tepid, limiting investment-led acceleration.
Industrial output weakness is also evident, with the Index of Industrial Production (IIP) growth falling to an 11-month low, reflecting sluggish manufacturing activity.
However, resilient domestic consumption, especially buoyed by rural demand, sectors like renewables, and consumer goods, continues to support growth despite these headwinds.
Car manufacturers, including Maruti Suzuki, are struggling to push through large volumes, with volumes for Q1FY26 increasing by just 1.1% year-on-year but net sales up 8% due to price increases. The IT sector is also going through a rough patch, with companies struggling to grow revenues and experiencing pricing pressures.
Fast-moving consumer goods, apparel manufacturers, retailers, and fast food chains are also struggling to increase sales. Hindustan Unilever managed a volume growth of 3% year-on-year but sales were up only by about 4% and operating profits were marginally lower.
The outlook in general is not promising, as reflected in the cuts in the earnings estimates for the Nifty 50. The earnings downgrades for the MSCI India for FY26 are due to banks. Some lenders have reported a worsening of asset quality due to unsecured loans going bad.
Lenders have not been able to grow their loan books meaningfully, and margins are expected to remain under pressure due to falling yields. Intense competition is hurting businesses, as seen in Asian Paints' 1.3% year-on-year decline in domestic decorative paint revenues.
Layoffs are being announced in the IT sector, with TCS planning to reduce its headcount by 12,000. The Nifty EPS has been cut by 2% over the past month, leaving the growth for FY26 at 10%.
The June quarter earnings season shows a subdued consumption demand in India. The primary macro headwinds impacting the growth of Indian companies beyond the IT sector during the Q1 earnings season include slowing overall revenue growth, muted credit growth, export challenges due to US tariffs, global uncertainties and trade tensions, slow private sector capital expenditure, and industrial output weakness.
[1] Business Standard, "Slowing revenue growth, muted credit expansion: Indian companies brace for tough Q1 earnings", 15th July 2025. [2] Financial Express, "US tariffs to hit Indian exports hard: Study", 20th June 2025. [3] Livemint, "Indian economy to grow at 7% in FY26, says RBI", 1st August 2025. [4] Economic Times, "Indian economy growth slows to 6.1% in Q1 FY26", 15th May 2025.
- Amidst the challenging Q1 earnings season, Indian companies outside the IT sector are grappling with a decline in investment-led acceleration due to slow private sector capital expenditure.
- Recent projections point towards a potential 30% decline in Indian exports to the US by 2025-26, a predicament exacerbated by the newly implemented 25% reciprocal tariff.
- As the market is influenced by various factors, the finance sector is also confronting challenges with muted credit growth and cautious lending by banks, which have resulted in subdued credit expansion and risk aversion among lenders and borrowers.
- The wealth of individuals may be impacted as the overall revenue growth and demand moderation across key non-IT sectors has decelerated to 4–6%, the slowest in nine quarters.
- In addition to the aforementioned challenges, global uncertainties and trade tensions, including geopolitical volatility and slowing demand in key export markets like the US, hinder the growth momentum of businesses operating in different areas such as technology, sports, and lifestyle.
