Despite a robust 10% year-on-year revenue increase, Nifty 50 companies reported an 8.1% drop in net profits during the third quarter of FY25—the first decline in 13 consecutive quarters. This paradox stems largely from regulatory shocks tied to new labor regulations.
Stripping out banks, financials, and energy majors, underlying sales grew at a healthy double-digit pace, the strongest since early 2023. Operational earnings climbed 7.5%, building on recent momentum. Yet, the aggregate bottom line for 37 firms turned negative for the first time since late 2022.
Experts attribute the slump to one-time provisions under the updated labor codes, effective from November. These require elevating base salaries to half of total CTC and enhancing gratuity obligations, creating immediate accounting burdens.
Technology firms bore the brunt, with TCS, Infosys, and HCL collectively booking ₹4,373 crore in charges. The sector could see profits shrink by 13%, while overall post-tax earnings dipped around 5%. Implemented changes also cover workplace safety and social security enhancements.
Sequential trends offer optimism: revenues jumped to 20% growth from 16%, aided by recent GST reductions stimulating demand. As these one-off hits fade, analysts expect normalization, but the episode highlights vulnerabilities in India’s corporate landscape amid policy shifts.
For investors, this quarter serves as a reminder that beneath headline growth numbers lie complex regulatory undercurrents that can swiftly alter profitability trajectories.