Key Points

However, firms flagged concerns around increasing input costs and wage pressures.

The 45th round of the RBI's forward-looking SIOS survey, which covered 693 companies, reported an overall improvement in the business situation, turnover, and employment across both sectors in Q1 FY26. The survey also captured expectations for the July-September quarter and outlook for the remaining fiscal years on key parameters.

Firms in the services sector reported improvement in the overall business situation, employment conditions and turnover in Q1 FY26. However, rising wages emerged as a growing concern.

However, driven by higher turnover and selling prices, profit margins increased, with a net response of 8.1 per cent in Q1 FY26, up from 7.6 per cent in the previous quarter. The survey suggests that positive trend is expected to continue at a moderated pace in Q2 FY26.

The survey shows services firms remain optimistic about demand conditions in Q2 FY26. The net response on turnover expectations stood at 60.3 per cent in Q2 FY26, down from 72.3 per cent in Q1 FY26.

Infrastructure companies echoed a similar sentiment, reporting positive assessments on business conditions, turnover and employment in Q1 FY26. Net response for turnover stood at 34.5 per cent, with overall business situation at 32.2 per cent.

However, the outlook for profit margins and selling prices has tempered, reflecting continued input cost pressures.

For Q2 FY26, infrastructure firms retained a strong optimism on overall business conditions. Turnover expectations also remained robust. Despite high input costs, infrastructure companies expect sequential improvement in turnover and business situation in the second half of FY26.

However, persistent cost pressures remained a key concern to both services and infrastructure sector companies. Firms across both sectors reported expectations of higher physical investment in the coming quarters.

- ANI