The appraisal cycle is one of the most anticipated phases in the corporate world. Employees eagerly awaiting a hike in the upcoming months may be in for a disappointing ride.
The consequences of two consecutive disappointing earnings seasons are now reflected in the sentiment of analysts and markets. Benchmark indices are deep in the red territory, with Sensex shedding over 7,000 points from its peak in September. Foreign investors have also sold over Rs 1 lakh crore since the start of October, reflecting a poor short-term outlook for Indian companies.
According to Bloomberg data, 22 out of 41 companies in the Nifty50 index that announced Q2 results fell short of profit estimates. Crisil's market analytics data indicated that India Inc. may have clocked a 16-quarter low revenue growth between 5-7 per cent in the second quarter of the financial year 2025.
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With the outlook on earnings negative, the slowdown may also be felt by employees.
Slowdown in Salary Hikes?
Experts say the earnings slowdown is bound to influence the outlook of companies towards salary hikes. Neeti Sharma, CEO of Teamlease Digital, a staffing firm, says that the companies might go for a conservative approach this time.
She notes, “Amid corporate earnings pressures and market volatility, many industries may adopt conservative compensation strategies, guarded salary increments to safeguard margins. Historically, downturns have seen wage growth taper to around 5-7 per cent, with even high-growth sectors experiencing tempered increments.”
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Sharma says that a few sectors like IT, healthcare, renewable energy and e-commerce might buck the trend. But for the broader corporate landscape, there are expectations that the wage growth would be tempered.
The quarterly data on employee expenses of companies in the BSE500 index reveals the cautious stance of India Inc. For 443 companies that have announced Q2 results so far, the total aggregate expenses on employees witnessed a 4.5 per cent year-on-year growth. This was sequentially lower than the 6.4 per cent growth seen in the first quarter.
The declining growth trend suggests things might not be rosy in the upcoming salary hike cycle. Paras Jasrai, Senior Economic Analyst, India Ratings and Research, suggests there are some mixed signals, but things might improve if earnings pick up in the next six months. “For listed corporates, there has been some slowdown. It is expected to get corrected in second half of FY25 due to pick up in spending led by favourable monsoon and moderation in inflation,” he says.
With retail inflation inching up to 6.21 per cent in October, employees would hope that earnings pick up in the next few months to give them relief on rising bills.
In a note, DSP Mutual Fund pointed out that all signs point to wage growth losing steam. “IT is losing steam, falling below its 14 per cent long-term average. While Financial Services remains resilient, signs point to slower wage growth in FY25. On balance, most other sectors are struggling to see material wage bill growth,” the note said.
This will not bode well for several consumer-facing companies. Britannia and Nestle, among others, have already flagged weak urban consumer demand, which indicated a slowing wage growth environment.
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Looking at the earnings, employees may have to enter the next appraisal cycle with tempered expectations.