ICRA Projects India Inc Revenue Growth to Slow to 13-15% in Q2 with Margins Under Pressure

Rating agency ICRA has projected that India Inc’s revenue growth will moderate to 13-15 per cent in the July-September quarter of 2026-27. This anticipated figure marks a slowdown from the 21.3 per cent year-on-year growth recorded in the first quarter of the fiscal year by ICRA's sample of 2,756 listed non-financial companies.

Along with the moderation in revenue growth, the agency warned that operating profit margins could contract by 100-150 basis points on a year-on-year basis in the second quarter. This margin pressure is primarily driven by elevated raw material, fuel, freight, and packaging costs. These expenses have risen largely due to the ongoing West Asia conflict and the depreciation of the rupee against the dollar.

Despite the squeeze on profit margins, ICRA expects India Inc’s interest coverage ratio to remain resilient at 4.9-5.2 times in Q2 2026-27, staying broadly in line with the 5.1 times recorded in the previous quarter.

Topline growth is expected to be supported by domestic consumption, festive season trade stocking, and favourable commodity realisations. However, several companies have raised prices to pass on cost increases, a move that is likely to dampen volume growth even as value-led growth continues.

Sectoral performance is expected to diverge significantly. Industries dependent on domestic demand—such as automobiles, retail, consumer durables, and hospitality—are projected to outperform export-oriented industries. In contrast, export-heavy sectors like IT, apparel, and cut-and-polished diamonds face weak global demand and rising trade protectionism.

On the margins front, specific segments face sharper pressure. Oil refiners, aviation, FMCG, and cement companies are expected to experience the most pronounced margin strain. Meanwhile, metals, mining, telecom, and select utilities are better positioned due to favourable realisations or cost pass-through mechanisms.

ICRA has also flagged a key downside risk regarding the below-normal rainfall forecast for August-September. This weather pattern could potentially weaken rural demand and drive up food inflation, adding further weight to agri-linked and rural-focused sectors in the upcoming quarter.

"The projected moderation in revenue growth and margin contraction highlight the realities of external cost pressures, particularly from global supply chain disruptions and currency depreciation. While domestic-facing sectors like retail and automobiles show resilience, businesses must carefully manage their pricing strategies to balance value-led growth against potential volume dampening. Monitoring rural demand and seasonal weather risks will also be critical for companies with agri-linked exposure as we navigate the second quarter." — Dr. Shishir Gupta, Founder & CEO, StartupLanes