August 2025: Strong monetary and fiscal policy actions to aid growth

In this newsletter we look at the corporate results for Q1FY2026 for the non-financials in the BSE-500. Out of 429 non-financial companies in BSE500, we have taken 357 companies for whom we have like-to-like numbers. They form ~91% of total market cap of all non-financials in the BSE500.

Revenue growth for Q1FY2026 is tepid at 4.5%, though when we exclude the volatile Energy sector, it comes in at 7.6%. Revenue growth has now been poor for the last 9 quarters. EBIT growth for Q1FY2026 came in slightly better at 9.3% and ex-Energy it is at the same 7.6% as revenue growth ex-Energy. Corporate results have now been weak for 8-9 quarters and have been a cause for worry.

There seems to be some recognition in government about the weak growth environment and a number of steps have been taken to push growth over the last 9 months. The RBI started off with a CRR cut of 50bps in Dec 2024. Then in the budget for the current year, the government announced that all income below Rs 12 lakh will attract zero income tax. This is expected to provide a large relief to taxpayers and provide a fillip to consumption and investment. Further, in February and April meetings, RBI reduced repo rate by 25bps each.

Then the RBI cut the repo rate again in Jun 2025 by 50bps and also announced a cut of 100bps in CRR from Sep 2025 to Nov 2025. This will bring the CRR to 3%, the lowest it has ever been and equal to what it was during the covid pandemic. This is expected to infuse a lot of liquidity into the banking system. The cut in interest rates should also spur consumption.

And now on Independence Day, the Prime Minister announced rationalization of the GST structure with reduction in the standard rates to two rates of 5% and 18% with a few exceptional cases attracting higher rates of GST. This is a welcome move because fewer rates should lead to simplification and lower litigation. It appears that there will be significant relief as many items, particularly automobiles, move to a lower GST rate. This is again expected to boost consumption.

The slowdown in the economy in recent quarters has prompted the government to take aggressive action, as enumerated above, to address the issue. Moreover, the 50% tariffs that were levied by the US on India, starting August 27, are expected to be a body blow for Indian exports to the US (Total Indian Exports to US – $87bn in 2024, roughly 18% of total Indian goods exports). The government seems to be using this moment of crisis to take necessary aggressive steps to jump start growth, which has been poor in recent times. It is choosing to forego revenues, both in direct taxes as well as indirect taxes to provide an impetus to growth. There also seems to be a trend of regulators moving towards greater de-regulation of the economy. All these steps are indeed very welcome, and we expect all these measures to provide a push to growth in the short to medium term. While the market has come off over the last 2 months, the broad valuations remain on the higher side, and it will need good corporate growth to justify these valuations.