India Inc’s earnings recovery is expected to sustain in Q1FY26, with operating profit margins (OPM) likely to remain steady at 18.2-18.5 per cent, according to a recent report by rating agency ICRA. This followed the sequential recovery over the past few quarters. The profitability boost, coupled with resilient domestic demand, easing input costs, and a series of repo rate cuts totalling 100 basis points, is likely to strengthen the interest coverage ratio to 5.1- 5.2 times in Q1FY26, up from 5.0 times in the previous quarter.
Capex sentiment cautious amid global uncertainty
Kinjal Shah, Senior Vice President & Co-Group Head – Corporate Ratings, ICRA Limited, said, “Given the uncertain global environment, ICRA expects the private capital expenditure (capex) cycle to remain measured.
While select sectors such as electronics, semiconductors, and electric vehicles continue to attract capex momentum in line with the various PLI programmes announced by the government, ICRA said, the overall investment climate remains cautious amid global uncertainties.
Further, the ratings agency said, entities linked with the Indian Railways and Defence sectors would also see their large order books translating into revenues and earnings.
Consumption, infra sectors drive revenue growth
ICRA analysed the performance of 589 listed companies (excluding financial sector entities) in Q4FY25 to reveal a 7.6 per cent YoY revenue growth. This, it added, was supported by improved demand across consumption-oriented sectors like consumer durables, retail, hotels and airlines as well as infrastructure-oriented sectors like power, real estate and construction. On the other hand, sectors like iron and steel saw some decline, following lower realisations owing to weak global demand and influx of cheaper imports from China.
Q1FY26 outlook
India Inc is likely to see steady revenue growth in Q1FY26, driven by strong domestic demand, ICRA said. The report maintained that the rural demand remains healthy, while urban demand is expected to pick up thanks to income tax relief and lower food inflation. At the same time, geopolitical tensions continue to weigh on export-facing sectors such as agrochemicals, textiles, auto and auto parts, cut and polished diamonds, and IT services.
Corporate India’s operating profit margin (OPM) rose by 63 bps year-on-year to 18.5 per cent in Q4FY25, which was the highest since Q4FY22. According to ICRA analysis, this was driven by strong demand in sectors like power, airlines, and real estate, along with slightly lower input costs. Compared to the previous quarter, margins also improved by 41 bps.
Excluding low-debt sectors like IT, FMCG, and pharma, ICRA said, the interest coverage ratio rose to 5.0 times in Q4FY25 from 4.8 times a year ago, aided by better earnings. Stable debt levels and improved profitability in industrials, capital goods, and construction helped strengthen overall corporate balance sheets.
Looking ahead, India Inc’s operating profit margin (OPM) is expected to hold steady and this will be supported by strong demand, better consumer sentiment, and lower input costs like crude oil, coal, and steel. With interest rates also coming down, the interest coverage ratio is likely to improve to about 5.1–5.2 times, ICRA concluded.