ICRA Lowers Revenue Growth Prospects For India Inc In Q2 FY2026

(MENAFN- KNN India) New Delhi, Aug 28 (KNN) Rating agency ICRA has projected that India Inc will report subdued revenue growth of 5-6 percent in the second quarter of fiscal year 2026, marginally lower than the 5.5 percent growth recorded in the preceding quarter.

The agency attributes this outlook to ongoing global economic uncertainties and domestic demand challenges.

Despite the modest revenue growth expectations, ICRA anticipates that operating profit margins will remain stable in the range of 18-18.2 percent on a year-on-year basis.

This stability is expected to be supported by the softening of key input costs, including crude oil and coal, which should help offset the impact of slower revenue growth.

The credit rating agency forecasts that India Inc's credit metrics will remain largely unchanged during Q2 FY2026, with the interest coverage ratio expected to maintain a range of 4.9-5.1 times, compared to 4.9 times in the first quarter. This stability indicates that corporate financial health is expected to remain resilient despite growth headwinds.

Kinjal Shah, Senior Vice President and Co-Group Head of Corporate Ratings, ICRA, highlighted several factors constraining growth prospects.

She noted that ongoing geopolitical tensions and steep US tariffs continue to impact demand sentiment, particularly affecting export-oriented sectors including agro-chemicals, textiles, automotive and auto components, seafood, cut and polished diamonds, and information technology services.

The domestic market presents a mixed picture, according to Shah. While rural demand has shown resilience, urban demand recovery has been limited.

She emphasized that despite favorable conditions such as income tax relief and easing food inflation, a meaningful recovery in consumer sentiment remains crucial for stimulating urban demand. The executive suggested that expected GST rate cuts could provide some stimulus to overall demand conditions.

ICRA's analysis of 585 listed companies, excluding financial sector entities, revealed that first quarter FY2026 performance showed 5.5 percent year-on-year revenue growth.

This growth was primarily driven by healthy demand in consumption-oriented and infrastructure-oriented sectors, demonstrating selective strength across the economy.

However, the agency noted seasonal patterns affecting quarterly performance. Following a seasonally strong fourth quarter of FY2025, India Inc revenues declined sequentially by approximately 4.1 percent in Q1 FY2026.

This decline was led primarily by sectors including real estate, construction, capital goods, hotels, and airlines, reflecting the cyclical nature of these industries.

Despite tepid urban demand growth over the past 18 months, ICRA observed a notable trend toward premiumization across multiple consumption categories.

This shift is evident in sectors ranging fr0m automobiles to fast-moving consumer goods to watches, where consumers are increasingly opting for higher-value products and services.

The agency noted that this product mix evolution is supporting headline revenue growth even as volume growth remains soft. This premiumization trend has become a significant factor in maintaining revenue momentum during periods of constrained volume expansion.

Additionally, ICRA highlighted that organized players across various sectors, including hospitality, hospitals, and jewelry retail, are actively expanding their market presence.

These companies are pursuing growth through strategic acquisitions and other commercial arrangements, contributing to overall revenue growth in their respective sectors despite challenging market conditions.

(KNN Bureau)

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