Will India Inc’s Operating Profit Margins Climb to 18.5% in Q1 FY26?

New Delhi, June 16 (NationPress) It is anticipated that India Inc’s operating profit margins will see an increase of 10 to 40 basis points, reaching 18.2-18.5 percent during the first quarter (April-June) of FY2026. This forecast follows a sequential rebound observed over recent quarters, as per a report published by the rating agency ICRA on Monday.

“This rise, combined with a reduction in interest costs due to the RBI’s recent repo rate cuts totaling 100 basis points, will enhance the interest coverage ratio for India Inc. to approximately 5.1-5.2 times in Q1 FY2026, compared to 5.0 times in Q4 FY2025,” the report indicates.

According to Kinjal Shah, senior vice president at ICRA, “Considering the unpredictable global climate, the private capital expenditure (capex) cycle is likely to remain cautious. Nevertheless, certain burgeoning sectors such as electronics, semiconductors, and specific areas within the automotive sector, like electric vehicles, are expected to witness increased investments, supported by the various production-linked incentive programs introduced by the Government of India.”

“Additionally, companies associated with the Indian Railways and Defence sectors are likely to convert their substantial order books into revenue and profits,” he added.

ICRA’s review of the performance of 589 listed companies (excluding those in the financial sector) during Q4 FY2025 revealed a 7.6 percent year-on-year revenue growth, driven by improved demand in consumption-driven sectors such as consumer durables, retail, hotels, airlines, and infrastructure-related sectors like power, real estate, and construction. Conversely, sectors like iron and steel experienced a downturn due to lower realizations stemming from weak global demand and an influx of cheaper imports from China.

India Inc. is projected to report stable revenue growth in Q1 FY2026, bolstered by resilient domestic demand, while rural demand is anticipated to remain robust. Urban demand is set to recover, aided by income tax relief, declining food inflation, and reduced EMI burdens, as noted in the report.

However, ongoing geopolitical tensions are still affecting demand sentiments, particularly for export-focused sectors such as agro-chemicals, textiles, automotive and auto components, cut and polished diamonds, and IT services.

Corporate India recorded a 63 basis points year-on-year expansion in operating profit margins in Q4 FY2025, reaching 18.5 percent, the highest since Q4 FY2022. This growth was driven by enhanced operating leverage due to strong demand in sectors like power, airlines, and real estate, along with some easing of input costs. Additionally, on a sequential basis, margins improved by about 41 basis points in Q4 FY2025. The interest coverage ratio for ICRA’s sample set of companies, adjusted for sectors with relatively low debt levels (like IT, FMCG, and pharmaceuticals), increased year-on-year to 5.0 times in Q4 FY2025 from 4.8 times in Q4 FY2024, reflecting heightened profitability.

Stable debt levels, coupled with improved profitability for India Inc. in FY2025 across industrial, capital goods, and construction sectors, have led to better gearing and total debt relative to operating profit before interest, taxes, and depreciation.