India Inc’s revenue growth to moderate to 13-15% in Q2 FY27; margins under pressure: ICRA

India Inc’s revenue growth is expected to moderate after a strong Q1, according to ICRA. Following 21.3% year-on-year growth in the June quarter, the rating agency projects growth of 13-15% in Q2 FY27, while higher input costs continue to pressure profit margins.

Based on a sample of 2,756 listed companies outside the financial sector, ICRA says corporate earnings remain healthy, although 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. ICRA does not expect this festive-season-like surge to be repeated in Q2. However, domestic consumption, early festive inventory buildup and favourable pricing in some commodity-linked sectors should continue to support revenue growth.


"ICRA expects sectors such as automobiles, retail, consumer durables, hospitality, etc., which rely on domestic consumption, to continue to outperform export-oriented sectors like information technology, apparel/home textiles, cut and polished diamonds, etc.," said Jitin Makkar, Senior Vice President & Group Head-Corporate Ratings, ICRA Limited.

He said continued weakness in global demand could weigh on export-oriented sectors while domestic demand is expected to remain relatively resilient. However, he cautioned that the below-normal rainfall forecast for August and September—despite July’s recovery—could pressure rural consumption and agriculture-linked sectors by driving up food inflation.

Revenue, margins and interest cover

ICRA estimates that India Inc.'s aggregate operating profit margin (OPM) will contract by 100-150 basis points year-on-year in Q2 FY27, squeezed by elevated raw material, fuel, freight and packaging costs. On the credit side, there's more comfort: 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.

Sectors: a mixed bag

Oil refining companies are likely to bear the brunt, hit by under-recoveries on petroleum products and thinner marketing margins. Aviation, automobiles, FMCG, cement and other energy-intensive sectors face a different squeeze: costlier crude, palm oil and coal are pushing up freight and packaging bills, driven partly by the West Asia conflict and a weaker rupee. Most are trying to claw back these costs through pricing actions, ICRA said.

Metals, mining, upstream oil, telecom and some utilities are better placed, benefiting from stronger realisations, operating leverage or the ability to pass on costs. Steelmakers have an added tailwind: safeguard duties on select flat products have supported domestic prices.

Growth drivers and risks

Makkar summed up the quarter as one likely to show a widening gap between how fast companies are growing and how much they're keeping.

"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 2026-27," he said.

Sectors like FMCG, retail, chemicals, pharmaceuticals and aviation should see upward price revisions translate into double-digit revenue growth, even as "weaker consumer sentiment in the mass segment, dealing in price-sensitive product categories" weighs on the broader demand picture, Makkar said.

Below-normal rainfall adds another layer of risk to rural demand, though it could paradoxically support infrastructure-linked sectors—project execution, otherwise slowed by monsoon rains, may pick up pace as the weather clears.

Hospitality is tipped to gain as domestic travellers substitute for still-subdued foreign tourist arrivals, while export-oriented businesses remain exposed to soft demand in developed markets, rising trade protectionism, and elevated freight costs, cushioned somewhat, Makkar noted, by a trickle of US tariff refunds.

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