New Delhi, June 16 India Inc’s operating profit margins are expected to increase by 10 to 40 basis points to 18.2-18.5 per cent in Q1 (April-June) of FY2026, following the sequential recovery over the past few quarters, according to a report released by rating agency ICRA on Monday.
“This, coupled with a moderation in interest costs, owing to the RBI’s recent repo rate cuts aggregating to 100 basis points bps, will result in an improvement in the interest coverage ratio for India Inc. to around 5.1-5.2 times in Q1 FY2026, against 5.0 times in Q4 FY2025,” the report states.
Kinjal Shah, senior vice president at ICRA, said, “Given the uncertain global environment, the private capital expenditure (capex) cycle is expected to remain measured. However, certain sunrise sectors such as electronics, semiconductors and niche segments within the automotive space like electric vehicles will continue to see a scale-up in investments, in line with the various production-linked incentives programmes announced by the Government of India.”
“Further, entities linked with the Indian Railways and Defence sectors would also see their large order books translating into revenues and earnings,” he added.
ICRA’s analysis of the performance of 589 listed companies (excluding financial sector entities) in Q4 FY2025 revealed 7.6 per cent year-on-year revenue growth, supported by improved demand across consumption-oriented sectors like consumer durables, retail, hotels and airlines as well as infrastructure-oriented sectors like power, real estate and construction. On the other hand, sectors like iron and steel saw some decline, following lower realisations owing to weak global demand and influx of cheaper imports from China.
India Inc. is expected to report stable revenue growth in Q1 FY2026, supported by resilient domestic demand, while rural demand is expected to remain healthy, urban demand looks set to recover, supported by income tax relief, easing food inflation, and reducing EMI burden, the report further states.
However, the ongoing geopolitical tensions continue to impact demand sentiments, especially for export-oriented sectors such as agro-chemicals, textiles, auto and auto components, cut and polished diamonds, and IT services.
Corporate India reported a 63 basis points year-on-year expansion in operating profit margins in Q4 FY2025 to 18.5 per cent, reaching its peak since Q4 FY2022. The expansion was on the back of improved operating leverage owing to robust demand led by sectors like power, airlines and real estate, coupled with some moderation in input costs. Moreover, on a sequential basis, the margin improved by around 41 basis points in Q4 FY2025. The interest coverage ratio of ICRA’s sample set companies, adjusted for sectors with relatively low debt levels (IT, FMCG and pharmaceuticals), improved on a YoY basis to 5.0 times in Q4 FY2025 from 4.8 times in Q4 FY2024 due to increased profitability.
Range-bound debt levels coupled with better profitability of India Inc. in FY2025 across industrial, capital goods and construction sectors led to an improvement in gearing and total debt vis-a-vis operating profit before interest, tax and depreciation.
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