India Inc revenue growth is expected to moderate to 13-15% in Q2 FY27, down from 21.3% recorded in the April-June quarter, according to Icra Ratings. The rating agency also expects corporate operating profit margins to remain under pressure during the quarter due to higher input and operating costs.
India Inc Revenue Growth Faces Domestic and Global Challenges
Icra Ratings said sectors driven by domestic consumption are likely to perform better than export-oriented industries. Automobiles, retail, consumer durables and hospitality could benefit from relatively resilient domestic demand. In contrast, information technology, apparel and home textiles, and cut and polished diamonds may face weaker global demand.
Icra Ratings Group Head for Corporate Ratings Jitin Makkar said persistent weakness in global demand could affect export-focused sectors. Domestic consumption, however, is expected to remain comparatively resilient.
Margins Under Pressure in Q2 FY27
India Inc’s aggregate operating profit margin (OPM) could decline by 1-1.5 percentage points compared with the year-ago period. Higher raw material, fuel, freight and packaging costs are expected to remain key challenges for businesses.
The agency expects the Q2 earnings cycle to show a gap between revenue growth and profitability. Companies may report healthy revenue growth while facing pressure on operating margins.
Monsoon and Inflation Add Risks to Growth
A below-normal monsoon outlook for August and September could create additional risks for agricultural output and rural consumption. It could also contribute to higher food inflation during Q2. These factors may affect revenue growth and margins in rural-focused and agriculture-linked sectors.
Oil, Aviation and FMCG Sectors Face Cost Pressure
Oil refiners are expected to remain under margin pressure because of under-recoveries on petroleum products and weaker marketing margins. Aviation, automobiles, FMCG and cement companies could also face higher costs due to elevated crude oil and derivative prices.
Higher palm oil and coal prices may further increase freight and packaging costs. However, several companies are taking pricing measures to offset higher costs linked to the West Asia conflict and the rupee’s depreciation against the US dollar.
Select Sectors Remain Better Placed
Metals and mining companies, upstream oil producers, telecom operators and select utilities are expected to remain relatively better positioned on margins. Favourable realisations, operating leverage and cost pass-through mechanisms could support their profitability.
Despite the expected margin pressure, Icra Ratings said India Inc’s credit metrics are likely to remain resilient.
Source: PSU Watch
