India’s corporate sector is likely to witness slower earnings growth over the next 12 to 18 months as rising input costs, supply-chain disruptions, rupee depreciation and labour market uncertainty weigh on demand and business investment, according to a report by Moody's Ratings.
Moody’s highlighted three key risks that could drag earnings growth lower over the coming quarters. The first is the rise in input costs and supply disruptions stemming from the ongoing U.S.-Iran conflict. India’s dependence on imports of crude oil, natural gas, cooking fuel and fertilisers has increased the vulnerability of non-financial companies to commodity price shocks and supply-side disruptions.
According to Moody’s, higher commodity prices along with sustained rupee depreciation are likely to push up energy inflation and weaken consumer sentiment, particularly affecting discretionary spending across consumer-focused sectors. The report added that rising costs, supply-chain disruptions and uncertainty could also delay business investments, leading to weaker demand for industrial products such as steel, metals and cement.
The second major concern flagged by Moody’s is growing labour market uncertainty due to accelerating adoption of artificial intelligence. While AI adoption could improve productivity, the agency said it also raises the risk of job displacement and skill mismatches, especially in services and white-collar segments. These changes could slow income growth and hurt consumption demand over time.
Third, Moody’s warned that companies are likely to delay or scale back capital spending plans as they prioritise liquidity preservation and balance sheet strength over aggressive expansion. The report said capital expenditure growth is expected to moderate to around 4% over the next two years, compared with an 11% compound annual growth rate recorded between fiscal year 2022 and 2026.
Stocks that are most vulnerableThe report further noted that sustained high commodity prices and continued rupee weakness could limit the scope for further interest rate cuts. Sectors such as airlines and automobiles remain particularly exposed to elevated crude oil prices because of their impact on fuel costs and consumer affordability.
The agency said airlines are attempting to partially pass on higher fuel costs through ticket prices while trying to maintain demand at reasonable levels. However, a sustained increase in jet fuel prices would raise operating costs and hurt ticket affordability, which Moody’s described as credit negative for InterGlobe Aviation.
In the automobile sector, passenger vehicle sales have remained resilient so far, but a sharp rise in petrol and diesel prices could weaken demand for internal combustion engine vehicles, affecting companies such as Tata Motors. Moody’s noted that while higher fuel prices may gradually support electric vehicle adoption, EVs still account for only about 5% of total passenger vehicle sales in India, limiting any immediate shift.
The ratings agency added that state-run oil marketing companies such as Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum are already witnessing severe earnings pressure because retail fuel prices have not increased in line with higher feedstock costs.
The report also warned that weak consumer sentiment and macroeconomic uncertainty could delay home purchases and commercial property investments, weighing on real estate activity and reducing demand for steel, cement and metals. Companies including Tata Steel, JSW Steel, Vedanta Resources and UltraTech Cement could be impacted by slower demand growth.
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Overall, Moody’s believes India’s corporate sector is entering a phase of slower earnings growth amid rising global uncertainties, higher input costs and weakening consumption trends. While stronger balance sheets are expected to provide stability, the agency cautioned that persistent inflationary pressures, delayed investments and softer demand could weigh on profitability across sectors over the next 12 to 18 months.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
