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Indian companies across multiple sectors have reported disappointing results in the second quarter of fiscal year 2025, notes a new JM Financials report. Consequently, their poor performance has triggered stock price corrections for affected companies. The brunt of this weaker than expected earnings was largely borne by consumer centric sectors like FMCG (fast moving consumer goods), retail, and auto, which slacked largely due to dampened urban demand. For instance, India's largest automaker, Maruti Suzuki, reported a 5% YoY decline in its total domestic passenger vehicle wholesales, largely on the back of pent-up inventory. Similarly, Honda reported a staggering 23% YoY dip in its total sales during October 2024. A recent report by Bernstein noted that around 48% of the companies listed on the NSE100 index missed their earnings estimate for Q2FY25, the highest since March 2020. Most companies have mentioned deteriorated domestic demand, urban slowing, macroeconomic risk, and margin pressures as the main reasons behind the dip. "The quarter's earnings have made investors nervous," noted the JM Financials report. The challenging environment stems from multiple factors: softening consumer demand, rising input costs, and companies' limited ability to increase prices. Moreover, this is not limited to just one quarter. Companies have been reporting weak, single-digit earnings growth for the last six consecutive quarters. Data from India Data Hub also suggests that corporate profits of listed companies plunged by as much as 3.4% during the quarter ended September 30, 2024. This is in stark contrast to the year-ago period, where they had shot up by over 40% The oil and gas sector had a difficult quarter, with refiners hit by weak margins and city gas distributors struggling with higher input costs. Financial institutions showed mixed results. While government-owned banks reported strong numbers, microfinance institutions and some private lenders faced massive difficulties with their unsecured loans. Most notable amongst this was the case of IndusInd Bank, which saw its net profits dip by 40% amidst burgeoning provisions, which climbed 87% to Rs 1,820 crore in Q2, as against Rs 974 crore reported in the year-ago period. <h2>Markets head southwards</h2>The selling trend by FPIs has dragged down the major Indian indices, the Nifty 50 and Sensex, both of which have dropped by around 8% since the beginning of this selling spree in October. According to National Securities Depository Ltd. (NSDL) data, FPIs offloaded equities worth a significant Rs 19,994 crore in just the first five trading sessions of November last week. The impact is clearly visible on Indian stock markets. Data suggests that while every sector in October closed the month in red, auto, oil and gas, and consumer durables were the most badly hit, each declining by as much as 10% during the month. Another indicator underlining the inherent weakness of the market was that the month saw only 242 stocks hit their 52-week high, significantly below the usual monthly average of 310.

India Inc. stares at an earnings dearth in Q2, FMCG, auto, and consumer durables falter

Amid the ongoing geopolitical tension, the <keyword id="19904988" type="General" weightage="20" keywordseo="energy-sector" source="keywords">energy sector</keyword> will continue to face challenge while the <keyword id="20468174" type="General" weightage="20" keywordseo="consumer-goods" source="keywords">consumer goods</keyword>, automotive, healthcare is set to expand in 2025, highlighted a report 'Industry Outlook 2025' by <keyword id="20618515" type="General" weightage="100" keywordseo="Economist-Intelligence-Unit" source="keywords" meta.keywordsubtype="org" meta.entityname="Economist Intelligence Unit" meta.hostid="261" meta.entityid="Economist Intelligence Unit">Economist Intelligence Unit</keyword>. The report noted that the Fossil fuel markets will continue to face risks from geopolitical conflicts, particularly in the Middle East and Ukraine. However, investments in <keyword id="19895602" type="General" weightage="20" keywordseo="renewable-energy" source="keywords">renewable energy</keyword> will remain strong, especially in China, as the world pushes toward cleaner and more sustainable energy sources. The report said "Fossil-fuel markets will continue to face <keyword id="20064250" type="General" weightage="20" keywordseo="geopolitical-risks" source="keywords">geopolitical risks</keyword> amid conflicts in the Middle East and Ukraine, but investment into renewables will remain strong, particularly in China." It also added that the financial sector faces a mixed outlook with falling interest rates anticipated to narrow bank profit margins, potentially leading to smaller dividend payouts for shareholders. Yet, regulatory easing could provide relief, with the Basel III endgame likely seeing further delays, softening the impact on banking institutions amid a challenging economic landscape. For the consumer goods and retailing the report added that the Global retail volumes are forecast to grow by 2.2 per cent in 2025, thanks to easing inflation. However, stricter regulations on online retailing will target high-volume, low-price retailers, to ensure fair competition and consumer protection. It said "Global retail volumes will expand by 2.2 per cent, helped by disinflation, but regulations around online retailing will tighten further" As per report, the <keyword id="20359760" type="General" weightage="20" keywordseo="automotive-sector" source="keywords">automotive sector</keyword> is set for a record year, it said "After a difficult few years, annual new-vehicle sales will reach a record 97.2m units in 2025. This includes a 2 per cent rise in new car sales, a 4 per cent increase in commercial vehicle sales, and a significant 16 per cent growth in <keyword id="19963112" type="General" weightage="20" keywordseo="electric-vehicle-sales" source="keywords">electric vehicle sales</keyword>, reflecting the sector's recovery and the shift toward cleaner mobility. In technology the report added more countries will adopt satellite internet, although the primary users will be enterprise clients, including military and maritime sectors. Amazon's Project Kuiper will challenge the existing market dominance of Starlink and EutelSat OneWeb, offering more competition and potential growth in satellite connectivity. The resulting tensions will continue to affect investment into production and market entry, with companies taking advantage of government incentives to build out more flexible supply chains. <keyword id="23684177" type="General" weightage="20" keywordseo="investment-in-technology" source="keywords">Investment in technology</keyword>, particularly artificial intelligence (AI), will also be strong as projects gather pace. However, technology companies will face pressure from several directions as regulations tighten (particularly in Europe), investors become more impatient for profits and their energy usage comes under more scrutiny.

Consumer goods, auto and healthcare sector to expand but energy may face challenge in 2025: Report

<ul class="summary-list"><li>Russia almost tripled its defense spending to finance its invasion of Ukraine.</li><li>Defense firms are busy — but high inflation and interest rates past 20% have left them struggling.</li></ul>In Russia's defense sector, demand is surging — but its companies are struggling all the same.The Kremlin is seeking ever more weapons for its attack on Ukraine.But sky-high interest rates are leaving companies struggling to turn a profit, a prominent CEO recently said.Sergei Chemezov, CEO of the defense conglomerate Rostec, sounded the alarm in an address to Russian senators in late October.He <a target="_blank" class="" href="https://www.rbc.ru/economics/23/10/2024/6718c36a9a79476b774f1989">said</a> "record" interest rates were "eating up" the profit from its orders.<h2 id="f760578d-7185-4150-bf09-fde6f3d70c06">Debt trap</h2>He said clients tended to pay 30%-40% of an order's value in advance, leaving the firm to borrow the rest.That debt, he said, was so expensive that it canceled out any profit on the work."If we continue to work like this, then most of our enterprises will go bankrupt," he said.A few days after he spoke, Russia's central bank <a target="_blank" class="" href="https://www.businessinsider.com/russian-central-bank-raises-key-interest-rate-to-21-2024-10">hiked its main interest rate further still</a>, from 19% to 21%.Rostec is not alone in its predicament, economic analysts told Business Insider.Rising interest rates and export bans were eroding Russian defense companies' profits across the board, they said, making the Russian state the only guarantor of revenues.<h2 id="b9ad0c28-486e-4588-b4c2-4b027ca1e40d">Sustaining the war machine</h2>Since launching a full-scale invasion of Ukraine about two and a half years ago, the Kremlin has taken a slew of measures to keep its defense sector pumping out tanks, ammunition, drones, and missiles.It restructured its economy to prioritize the war, imposed export bans, tapped its national wealth fund, and strengthened trade with non-Western countries.Its defense budget soared, from $59 billion in 2022 to $109 billion in 2023.It's heading for an <a target="_blank" class="" href="https://www.sipri.org/media/newsletter/2023-december">estimated $140 billion</a> in 2024, with a draft budget forecasting $145 billion for 2025.That figure would represent 6.3% of Russian GDP, the highest share since Soviet times.That spending has consequences, said Roman Sheremeta, an associate professor of economics at the Weatherhead School of Management at Case Western Reserve University."The government pumped enormous sums of money to support the war efforts," he told Business Insider. "And the Russian reserves have been almost depleted."The liquid assets of Russia's national wealth fund dropped by almost half, from 8.9 trillion rubles (about $91 billion) before the war to 5 trillion rubles (about $51 billion) at the end of last year, Bloomberg <a target="_blank" class="" href="https://www.bloomberg.com/news/articles/2024-01-17/war-in-ukraine-drains-nearly-half-of-accessible-russian-reserves">reported</a> in January, citing Finance Ministry data."The Kremlin cannot afford defense companies to go bankrupt," Sheremeta said.<h2 id="86664911-b4d8-4aec-ad9a-8c27b113bb7b">A 'death spiral'</h2>While huge defense expenditures have contributed to economic growth in Russia and <a target="_blank" class="" href="https://www.businessinsider.com/russia-economy-ukraine-war-moscow-military-spending-currency-inflation-budget-2024-9">averted a recession</a>, they also fueled inflation.When it hiked the key interest rate to 21%, Russia's central bank said its mission was to tame inflation.In September, Russia's annual inflation rate rose to 8.6%, far above its 4% target.Sheremeta described the situation as a "death spiral," where war spending begets more inflation, which requires more war spending."What is even worse for those companies," he said of the defense firms, "is that they cannot export due to sanctions and sell their weapons for US dollars or Euros."Daniel Treisman, a professor of political science at the University of California, Los Angeles, and a research associate of the National Bureau of Economic Research, said Russia could end up with hyperinflation."As the budget deficit rises in the face of military costs, the need to cover part of it by printing money will drive prices ever higher, and the Central Bank will have to hike interest rates further to slow them," he said.<h2 id="2a236608-2617-4e7e-8687-d480f19dea32">A crisis point — but not yet</h2>The experts BI spoke to both said Russia could sustain its spending for a year or more before a crisis point.Some see even more runway.Iikka Korhonen, the head of research at the Bank of Finland Institute for Emerging Economies, said defense companies won't be allowed to go bankrupt, and would instead be restructured or bailed out.Russia has done that before, saving indebted defense firms in 2016 during an earlier financial crisis.If that doesn't fix the problem, "other sectors will be cut" to keep defense firms going, Korhonen said.Julian Cooper, Professor Emeritus at the Centre for Russian and East European Studies of the University of Birmingham, made similar remarks."If some defense companies cannot fulfill their obligations, the Kremlin can simply nationalize them," Sheremeta said.Konstantin Sonin, a professor at the University of Chicago Harris School of Public Policy, forecast a dark economic future ahead for Russia due in part to "borrowing" funds from the future.In an <a target="_blank" class="" href="https://www.businessinsider.com/russia-economy-ukraine-war-outlook-moscow-sanctions-west-firms-uchicago-2024-10">op-ed</a> for Project Syndicate earlier this month, Sonin wrote that massive investment in military production at the expense of key public spending programs may strengthen Putin's hand in the short term."But it sets a time bomb under longer-term economic development," he wrote."Whenever the Ukraine war ends and Russia returns to international trade (beyond raw materials), all the nationalizations of recent years will come back to haunt it," he wrote.

Russia's defense sector is running on overdrive — but firms are warning of bankruptcy

India could see a shift in foreign direct investment (FDI) trends in the second term of Donald Trump (Trump 2.0) as President of the United States, says a research report by the State Bank of India. The report highlighted that under his first term, Trump 1.0, the Trump administration made sweeping regulatory changes aimed at attracting investments back to the U.S., which impacted FDI inflows globally, including India. It added that if similar policies are reintroduced in Trump 2.0 also, it could create challenges for emerging markets like India, which rely on FDI as a significant driver of economic growth. Notably, a recent Kotak report highlighted that a complete Republican control over all arms of the US government would mean increased US earnings via corporate tax cuts, higher tariffs on imports into the US and greater US fiscal deficits. The first two could spell doom for emerging markets like India and China, since foreign investors will make a beeline for investing more money in the US markets, which will come at the cost of intense selloff in emerging markets. However, higher fiscal deficits will eventually lead to the dollar weakening after the initial euphoria dies down. "India may see shifts in foreign direct investments (FDIs) during Trump 2.0. The Trump 1.0 administration saw significant regulatory changes aimed at attracting investments back to the US," the SBI report stated. However, given that India has been gradually diversifying its sources of FDI (foreign direct investments), this trend could serve as a buffer against any potential decline. Moreover, domestic institutional investors have been stepping up big time, maintaining some balance to the massive exodus of FIIs over the past month. So far in November 2024, FIIs have withdrawn Rs 19,849 crores from the cash segment in Indian markets, while DIIs have poured in Rs 14,014.18 crores as of November 10th, 2024. "India is no longer dependent on the traditional sources of FDI inflows... unlike the recent past, FDI is now coming in many new sectors," noted the SBI report. Unlike a decade ago, when most FDI inflows came from a limited number of traditional sectors, India is now attracting investment in a wide array of industries, including renewable energy, sea transport, medical devices, and surgical appliances. Data suggests over the last 24 years, i.e., between April 2000 and June 2024, FDIs have poured in $1,013.4 billion in the Indian economy. Out of this, 67%, i.e., $689.88 billion, has come in just the last 10 years. The report added there are up to 12 emerging sectors showing strong FDI interest, which could help offset any loss of inflows in conventional sectors if there is a shift in global investment patterns under another Trump administration. In the last financial year, the top 5 sectors that have received the highest quantum of FDI inflow include the services sector (finance, banking, insurance, and business) which makes up about 16% of the inflows. This is followed computer software &amp; hardware, which constitute around 15% of total FDI flows. Trading and telecommunications follows with a share of 6% each, and Automobile Industry comes next with a 5% share. In the short term, the potential for increased U.S. tariffs, more restrictive H-1B visa policies, and a stronger dollar could bring some volatility to India's trade and investment landscape. However, in the long term, these challenges might also encourage India to expand its manufacturing capabilities, diversify export markets, and focus on becoming economically more self-reliant. Notably, India has maintained a merchandise trade surplus with the U.S. despite tariffs imposed during Trump's first term. This indicates that Indian exports have remained resilient, and there is potential to strengthen this trade relationship further by capitalizing on emerging sectors and reducing dependency on traditional industries. Suman Chowdhury, Executive Director &amp; Chief Economist, Acuité Ratings &amp; Research Limited cautions that in the medium to long term, the trade relationship with the US may see a structural improvement. "Higher tariff and trade restrictions in the US with China should translate into better opportunities for exports of manufactured goods from India", he adds.

FDIs may shift to US under Trump 2.0 but it is unlikely to severely impact FDIs inflow to India, says SBI Report

The ongoing issue involving Supreme Infrastructure India Limited (<keyword id="23294280" type="General" weightage="20" keywordseo="SIIL" source="keywords">SIIL</keyword>) and the State Bank of India (<keyword id="19898108" type="General" weightage="100" keywordseo="SBI" source="keywords">SBI</keyword>) has become a focal point in India’s financial and political landscape. It concerns SIIL’s default on significant loans and SBI’s decision to convert this debt into equity, raising concerns about the precedent it may set for future debt resolutions in India. <h2>SIIL's financial troubles</h2>SIIL, a construction and infrastructure company, was once engaged in large-scale projects such as roads and bridges across India. Over the years, however, the company faced severe financial troubles due to project delays and insufficient revenues. As SIIL’s cash flow problems worsened, it struggled to repay its loans, leading to the company’s default. The State Bank of India (SBI), being SIIL’s largest lender, found itself at the centre of this financial turmoil, as SIIL declared bankruptcy. In response, SBI decided to take an unusual step to recover its dues. <h2>SBI's debt-to-equity conversion decision</h2>In a surprising move, SBI converted its outstanding debt into equity in SIIL. This means that instead of pursuing traditional recovery methods or selling off assets, SBI has now become an equity stakeholder in SIIL, shifting from being its primary lender to part-owner. The controversial decision also involved other lenders who agreed to take a 93.45% “haircut” on the debt, which indicates that they are recovering only a fraction of the original loans extended to SIIL. <h2>Criticism and concerns</h2>The decision has drawn sharp criticism, particularly from political circles. <keyword id="19895371" type="General" weightage="20" keywordseo="Congress" source="keywords" meta.keywordsubtype="org" meta.entityname="Congress" meta.hostid="261" meta.entityid="Congress">Congress</keyword> leader Jairam Ramesh, through a post on the social media platform X (formerly Twitter), criticised SBI’s approach and raised several concerns. He highlighted that SBI’s decision to become an equity stakeholder in a company that declared bankruptcy could set a "dangerous precedent in India’s <keyword id="20575563" type="General" weightage="20" keywordseo="corporate-debt" source="keywords">corporate debt</keyword> landscape". "This arrangement creates a dangerous precedent in India's corporate debt landscape — it encourages other defaulting companies to seek similar deals, where they can retain control and value even after significant defaults," Ramesh noted. <div type="Article" hostid="261" msid="112987756" title="Congress alleges SEBI Chairperson Madhabi Puri Buch of office for profit" mstype="2" mssubtype="0"></div>His concerns extend to how this move might affect the <keyword id="20158086" type="General" weightage="20" keywordseo="Insolvency-and-Bankruptcy-Code" source="keywords">Insolvency and Bankruptcy Code</keyword> (IBC) and India’s overall framework for handling distressed companies. By converting <keyword id="22921090" type="General" weightage="20" keywordseo="debt-to-equity" source="keywords">debt to equity</keyword>, SBI could be seen as aligning itself with the interests of the defaulting borrower (SIIL) rather than prioritising the recovery of public funds, which are at stake in cases involving <keyword id="19959986" type="General" weightage="20" keywordseo="public-sector-banks" source="keywords">public sector banks</keyword> like SBI. “The SBI appears to be aligning itself with the interests of the defaulting borrower (SIIL) rather than prioritising the recovery of public funds,” Ramesh further argued. "The Reserve Bank of India (RBI) needs to step in and examine SBI's decision-making process in this matter." Given the unusual nature of this debt restructuring and the potential risks it introduces, Congress is urging the Reserve Bank of India (RBI) to step in and examine SBI’s decision-making process. Ramesh emphasised the need for regulatory scrutiny to ensure that public sector banks maintain discipline in their approach to resolving bad loans. Congress' position is that SBI’s move could create a moral hazard within India’s <keyword id="19964544" type="General" weightage="20" keywordseo="banking-sector" source="keywords">banking sector</keyword>, encouraging more companies to default on their loans with the hope of retaining control through similar debt-to-equity swaps. Ramesh pointed out that the entire situation raises questions about how distressed assets should be managed by public sector banks, and whether SBI’s actions are truly in the best interests of the public. <div type="Article" hostid="261" msid="113620397" title="SEBI report reveals the ugly truth of F&amp;amp;O trading in India – 93% of retail traders incurred losses" mstype="2" mssubtype="0"></div>"There is a pressing need to ensure that public sector banks maintain strict discipline in their approach to debt resolution and avoid creating moral hazards in the financial system." <h2>Broader implications</h2>This situation shines a light on broader challenges in India’s banking and insolvency frameworks. When public sector banks like SBI take significant financial losses (haircuts) and switch from creditors to shareholders, it risks undermining confidence in the banking sector’s ability to handle bad loans effectively. Moreover, it raises questions about the long-term sustainability of the Insolvency and Bankruptcy Code (IBC) if companies that default can avoid paying back substantial portions of their debt and still retain operational control. (With inputs from PTI)

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India Inc. stares at an earnings dearth in Q2, FMCG, auto, and consumer durables falter

Ira Alok Puranik

Consumer goods, auto and healthcare sector to expand but energy may face challenge in 2025: Report

ANI

Russia's defense sector is running on overdrive — but firms are warning of bankruptcy

Thibault Spirlet

FDIs may shift to US under Trump 2.0 but it is unlikely to severely impact FDIs inflow to India, says SBI Report

Ira Alok Puranik

Congress criticises SBI's decision to convert SIIL debt into equity, urges RBI intervention

BI India Bureau

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