India's Corporate Sector to Maintain Earnings Pulse in Q1FY26, According to ICRA
Indian businesses predicted to maintain profit growth in Q1 FY 26, according to ICRA - Key factors fueling this growth:
India Inc's earning recovery is expected to carry on in Q1FY26, with operating profit margins (OPM) estimated to stay around 18.2-18.5 percent, as per the latest report by rating agency ICRA. This follows the sequential recovery over the last few quarters. The boost in profitability, combined with resilient domestic demand, easing input costs, and a sequence of repo rate cuts totalling 100 basis points, is expected to enhance the interest coverage ratio to 5.1- 5.2 times in Q1FY26, up from 5.0 times in the previous quarter.
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Cautious Capex Sentiment Amid Global Uncertainty
Kinjal Shah, Senior Vice President and Co-Group Head - Corporate Ratings, ICRA Limited, said, "Given the uncertain global environment, ICRA forecasts the private capital expenditure (capex) cycle to remain on the conservative side.
While select sectors such as electronics, semiconductors, and electric vehicles are projected to maintain their investment momentum in line with the various government PLI schemes, ICRA commented that the overall investment climate remains wary due to global uncertainties.
Additionally, ICRA expects that entities connected with the Indian Railways and Defense sectors will see their large order books being translated into revenues and earnings.
Revenue Growth Driven by Consumption and Infrastructure Sectors
ICRA analyzed the performance of 589 listed companies (excluding financial sector entities) in Q4FY25 to reveal a 7.6 percent YoY revenue growth. This growth was bolstered by enhanced demand across consumption-oriented sectors like consumer durables, retail, hotels, and airlines, along with infrastructure-oriented sectors such as power, real estate, and construction. In contrast, sectors like iron and steel experienced a decline, due to lower realizations caused by weak global demand and increased imports from China.
Q1FY26 Outlook
India Inc is expected to continue experiencing steady revenue growth in Q1FY26, driven by robust domestic demand according to the report. Rural demand stays healthy, while urban demand is projected to pick up thanks to tax relief and lower food inflation. On the flip side, geopolitical tensions continue to affect export-facing sectors such as agrochemicals, textiles, automobiles, auto parts, cut and polished diamonds, and IT services.
Corporate India's OPM grew by 63 bps year-on-year to 18.5 percent in Q4FY25, marking the highest level since Q4FY22. ICRA's analysis points to strong demand in sectors like power, airlines, and real estate, along with slightly lower input costs as the driving factors. As compared to the previous quarter, margins also improved by 41 bps.
Excluding low-debt sectors like IT, FMCG, and pharma, ICRA stated that the interest coverage ratio rose to 5.0 times in Q4FY25 from 4.8 times a year ago, thanks to better earnings. Improved profitability in the industrial, capital goods, and construction sectors influenced the overall corporate balance sheets.
Looking ahead, India Inc's OPM is anticipated to remain steady, supported by strong demand, improved consumer sentiment, and reduced input costs such as crude oil, coal, and steel. With interest rates also lowering, the interest coverage ratio is expected to improve to around 5.1-5.2 times, ICRA concluded.
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Enrichment Data:- Electronics and Semiconductors: These sectors are expected to attract a substantial investment influx due to government-sponsored incentives like the Production-Linked Incentive (PLI) programs.- Electric Vehicles: This emerging segment within the automotive industry is also anticipated to witness ongoing investments, in line with government support and policies.- The global economy's volatile environment has led to cautious private capex investments in Q1FY26, according to the ICRA report, a rating agency.
- Despite the positive earnings outlook for Q1FY26, ICRA warns of global uncertainties affecting the overall investment climate, particularly in sectors like electronics, semiconductors, and electric vehicles.
- India Inc's revenue growth in Q1FY26 is expected to be driven by robust domestic demand, with urban demand projected to pick up due to tax relief and lower food inflation, while rural demand stays healthy.
- In contrast to the revenue growth, sectors like iron and steel are anticipated to experience a decline due to lower realizations caused by weak global demand and increased imports from China.
- The interest coverage ratio in Q1FY26 is expected to improve to around 5.1-5.2 times, as lower interest rates and better earnings contribute to improved profitability in industrial, capital goods, and construction sectors.
- The resilient domestic demand, combined with easing input costs and a sequence of repo rate cuts totalling 100 basis points, could enhance the interest coverage ratio and support the steady revenue growth in the corporate sector, though potential risks from global uncertainties remain.
