Key Points

The growth is likely to be supported by firm rural demand and structural factors such as premiumisation and the expanding scale and scope of organised players.

It stated "India Inc. to report modest YoY revenue growth of 5-6 per cent in Q2 FY2026 (5.5 per cent in Q1 FY2026), led by firm rural demand"

As a result, the report outlined that the credit metrics of the country are also expected to remain stable, with the interest coverage ratio estimated between 4.9 and 5.1 times, against 4.9 times in Q1 FY2026.

However, the report cautioned that the structure of the proposed GST rationalisation is still uncertain.

The expectations of lower prices could cause some discretionary purchases to be deferred from the second half of Q2 FY2026 to the second half of the fiscal, potentially leading to a temporary slowdown in demand momentum in certain sectors.

ICRA's analysis of 585 listed companies, excluding financial sector entities, showed 5.5 per cent YoY revenue growth in Q1 FY2026. This was led by consumption-oriented sectors such as consumer durables, retail, hotels, gems and jewellery, along with infrastructure-oriented sectors like capital goods, cement and construction.

The performance in Q1 FY2025 had been muted due to elections, providing a low base.

On a sequential basis, however, revenues of India Inc. declined by 4.1 per cent in Q1 FY2026, driven by weakness in sectors like real estate, construction, capital goods, hotels and airlines, following a seasonally strong Q4 FY2025.

While urban demand has been tepid for the past 18 months, premiumisation of consumption remains evident across product categories such as automobiles, FMCG and watches.

The changing product mix has supported revenue growth even as volume growth stayed soft.

Organised players in sectors like hospitality, hospitals and jewellery retail are expanding their footprint through acquisitions and commercial arrangements, further aiding revenue momentum.

Corporate India reported an OPM of 18.1 per cent in Q1 FY2026 on a YoY basis. Margin expansion in telecom, cement and real estate sectors was driven by improved demand and operating leverage, but this was partly offset by margin contraction in autos, consumer durables and metals & mining due to lower realisations and higher input costs.

ICRA added that the uncertain global environment may delay the private capex cycle further. However, investments in electronics, semiconductors and niche segments of the automotive sector such as electric vehicles are expected to continue scaling up.

Government capital expenditure will also support investment activity, though the scope for growth could be lower in later quarters of this fiscal after the up fronting seen in Q1 FY2026.

- ANI