Key Points

The report highlighted that the steady demand in the economy, especially from consumption-driven and infrastructure sectors, is seen as a key factor supporting profitability.

ICRA stated "India Inc's operating profit margins (OPM) at 18.2-18.5 per cent in Q1 FY2026, following the sequential recovery over the past few quarters. This, coupled with a moderation in interest costs, owing to the recent repo rate cuts,"

The central bank has reduced the policy rate by a total of 100 basis points in recent months. As a result, the interest coverage ratio, a measure of a company's ability to repay interest on its debt, is expected to improve to around 5.1 to 5.2 times in Q1 FY2026, up from 5.0 times in Q4 FY2025.

ICRA analysed the performance of 589 listed companies (excluding financial sector firms) for Q4 FY2025. These companies reported 7.6 per cent year-on-year revenue growth, led by strong demand in consumer durables, retail, hotels, airlines, power, real estate, and construction sectors.

However, some pressure was seen in sectors like iron and steel, due to lower global prices and rising imports from China.

Looking ahead, the report added that the domestic demand is expected to remain strong in Q1 FY2026. Rural demand is likely to stay healthy, while urban demand is expected to recover, aided by income tax relief, lower food inflation, and reduced EMI burden due to interest rate cuts.

Despite this positive trend, as per the report, the ongoing geopolitical tensions are likely to impact export-oriented sectors such as agro-chemicals, textiles, auto components, cut and polished diamonds, and IT services.

In Q4 FY2025, India Inc's operating margins surged by 63 basis points to 18.5 per cent, the highest since Q4 FY2022.

The increase was driven by robust demand, better operating leverage, and some moderation in input costs. On a sequential basis, OPM improved by 41 basis points.

The report also noted that companies across the industrial, capital goods, and construction sectors improved their financial health in FY2025. Lower debt levels and higher profits helped improve their gearing and debt-to-operating profit ratios.

Overall, India Inc's profit margins are expected to stay steady in Q1 FY2026, supported by improved consumer sentiment, stable input costs like crude oil, coal, and steel, and lower borrowing costs.

- ANI