Rating agency ICRA projects India Inc.’s revenue growth to remain healthy in the range of 13-15% in Q2 2026-27, although moderating from the robust 21.3% year-on-year (YoY) growth recorded in Q1 2026-27 by ICRA’s sample set of 2,756 listed companies (excluding the financial sector). Domestic consumption, festive season stocking by trade channels and favourable realisations in select commodity-linked sectors are expected to support revenue expansion in Q2 2026-27. However, the growth momentum is likely to moderate from the unusually strong performance in Q1 2026-27.
The Q1 performance had benefited from value inflation led by crude oil, commodity and bullion prices as well as a surge in sales volumes across all segments of the automotive industry. The surge was mainly attributable to the sustained demand push arising from the goods & services tax (GST) rate cut. While cost inflation-led growth is likely to sustain in Q2 2026-27, volumetric consumption growth is expected to moderate because of price hikes by various companies across sectors. Such price increases are driven by rising raw material, energy, labour and freight costs, primarily induced by the West Asia conflict.
Commenting on the trends, Jitin Makkar, Senior Vice President & Group Head-Corporate Ratings, ICRA Limited, said: “ICRA expects sectors such as automobiles, retail, consumer durables, hospitality etc., which rely on domestic consumption, to continue to outperform export-oriented sectors like information technology, apparel/home textiles, cut and polished diamond, etc. Persistent weakness in the global demand environment is likely to affect the performance of export-oriented sectors, while domestic demand remains relatively resilient. While the monsoon recovered meaningfully in July 2026 after a weak start, the all-India rainfall outlook for August-September remains below normal. This poses risks of lower agricultural output and rural consumption along with hardening of food inflation in Q2 2026-27, which could weigh on the revenue growth and margins of rural-focused and agri-based sectors.”
ICRA estimates that India Inc.’s aggregate operating profit margin (OPM) will continue to face headwinds from elevated raw material, fuel, freight and packaging costs and may fall by 100-150 basis points on a YoY basis in Q2 2026-27. The OPM trajectory is expected to remain divergent across sectors. Oil refining companies would continue to face margin pressure in Q2 2026-27 due to underrecoveries from petroleum products and thinner marketing margins. Besides, aviation, automobiles, fast-moving consumer goods (FMCG), cement and other energy-intensive sectors are likely to face pressure from elevated prices of crude oil and its derivatives, palm oil, coal, etc. and the consequent rise in freight and packaging material costs. However, most of these sectors are undertaking pricing actions to pass on the increased costs induced by the West Asia conflict and depreciation of the INR against the USD.
In contrast, metals and mining companies, upstream oil producers, telecom operators and select utilities are relatively better placed, supported by favourable realisations, operating leverage or costpass-through mechanisms. The realisations and profitability of steel producers continue to be supported by safeguard duty on select flat steel products as oversupply keeps global steel prices relatively soft. For consumption-oriented sectors, while price increases and cost-optimisation measures will provide some margin relief, the benefits may be visible only with a lag, given the need to protect demand and competitive positioning.
Despite the expected margin pressure, India Inc.’s credit metrics are likely to remain resilient. ICRA estimates that the interest coverage ratio of its sample set will remain in the range of 4.9-5.2 times in Q2 2026-27, broadly in line with 5.1 times recorded in Q1 2026-27, supported by stable earnings and funding costs. Nevertheless, the corporate sector’s ability to navigate the challenging operating environment through effective management of commodity price volatility and working capital cycle remains critical.
“The corporate earnings cycle in Q2 2026-27 is likely to witness a divergence between healthy revenue growth and constrained operating profit margins, as seen in Q1 2026-27. Upward price revisions to pass on the increased costs in certain sectors like automobiles, FMCG, retails, chemicals, pharmaceuticals and aviation are likely to translate into double-digit revenue growth for India Inc. in Q2 2026-27. However, weaker consumer sentiment in the mass segment, dealing in price-sensitive product categories, is likely to have a bearing on the overall demand scenario. Besides, below-normal rainfall poses risks to rural demand. However, the pace of infrastructure development could gain traction amid a weaker monsoon, supporting revenue growth in related sectors as project implementations are otherwise constrained by rains in Q2. The hospitality sector is likely to benefit from healthy domestic demand as outbound travel gets substituted, even as foreign tourist arrivals stay below par. Export-oriented businesses, meanwhile, remain exposed to subdued demand in developed markets, rising trade protectionism and elevated freight costs, with reported earnings cushioned by a trickle of US tariff refunds,” Makkar added.
