India Inc's revenue growth is expected to moderate to 13-15% in Q2 FY27 from 21.3% in Q1, according to ICRA. Based on a sample of 2,756 listed companies outside the financial sector, the rating agency reports that corporate earnings remain healthy, though growth has moderated from three months ago. The strong performance in Q1 was driven largely by higher crude oil, commodity and bullion prices, along with a sharp rise in auto sales following the GST rate cut, as reported by The Economic Times.
ICRA estimates that India Inc's aggregate operating profit margin (OPM) will contract by over 1 percentage point year-on-year in Q2 FY27, squeezed by elevated raw material, fuel, freight and packaging costs. The agency notes that operating profit margins are set to compress by 1-1.5 per cent in Q2 when compared to the year-ago period, with the margin pressure attributed to higher input costs that continue to squeeze profit margins across various sectors. The interest coverage ratio for the sample set is expected to hold in the 4.9-5.2 times range, broadly in line with the 5.1 times recorded in Q1 FY27, supported by stable earnings and funding costs.
According to Jitin Makkar, Senior Vice President & Group Head-Corporate Ratings at ICRA Limited, sectors such as automobiles, retail, consumer durables, and hospitality are expected to continue outperforming export-oriented sectors like information technology, apparel/home textiles, and cut and polished diamonds. As reported by Rediff Moneynews, Makkar explained that "persistent weakness in the global demand environment is likely to affect the performance of export-oriented sectors, while domestic demand remains relatively resilient." Oil refining companies are likely to bear the brunt, hit by under-recoveries on petroleum products and thinner marketing margins, while aviation, automobiles, FMCG, cement and other energy-intensive sectors face cost pressures from crude oil and its derivatives, palm oil, coal price increases, and consequent rise in freight and packaging material costs. 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 FY27.
ICRA cautioned that below-normal rainfall forecast for August and September could pressure rural consumption and agriculture-linked sectors by driving up food inflation, despite July's recovery. The agency noted that the same could weigh on the revenue growth and margins of rural-focused and agri-based sectors, with the below-normal monsoon outlook leading to risks of lower agricultural output. However, this weather pattern could paradoxically support infrastructure-linked sectors as project execution may pick up pace as weather clears. As reported by Rediff Moneynews, the corporate earnings cycle is likely to witness a divergence between healthy revenue growth and constrained operating profit margins, with sectors like FMCG, retail, chemicals, pharmaceuticals and aviation expected to see upward price revisions translate into double-digit revenue growth.
Despite margin pressures from elevated costs, India Inc's credit metrics are anticipated to remain resilient, according to ICRA. The agency noted that metals and mining companies, upstream oil producers, telecom operators and select utilities are relatively better placed on the margins front, supported by favourable realisations, operating leverage or cost-pass-through mechanisms. Most sectors are undertaking pricing actions to pass on increased costs induced by the West Asia conflict and depreciation of the rupee against the US dollar, helping to offset some of the margin pressures from rising input costs. Despite pressures on margins, India Inc's credit metrics are likely to remain resilient, it clarified.
