India Inc Set To Maintain Strong Profit Margins In Q1 FY2026: ICRA

New Delhi, Jun 16 (KNN) Indian companies are projected to sustain robust operating profit margins during the first quarter of the current financial year (Q1 FY2026), driven by resilient domestic demand and declining input costs, according to a forecast analysis released by credit rating agency ICRA.

The rating agency's report identified steady economic demand, particularly from consumption-driven and infrastructure sectors, as a primary catalyst for maintaining corporate profitability levels. 

ICRA forecasts that India Inc's operating profit margins will range between 18.2 and 18.5 percent in Q1 FY2026, continuing the sequential recovery trend observed over recent quarters.

The financial outlook has been further bolstered by a moderation in interest costs following recent monetary policy adjustments. 

The central bank has implemented a cumulative reduction of 100 basis points in the policy rate over recent months, contributing to improved corporate financial metrics.

As a consequence of these rate cuts, the interest coverage ratio—which measures a company's capacity to service its debt obligations—is anticipated to strengthen to approximately 5.1 to 5.2 times in Q1 FY2026, representing an improvement from 5.0 times recorded in Q4 FY2025.

ICRA's analysis encompassed 589 listed companies, excluding financial sector entities, for their Q4 FY2025 performance. 

These corporations demonstrated a 7.6 percent year-on-year revenue growth, with particularly strong performance in consumer durables, retail, hospitality, aviation, power, real estate, and construction sectors.

However, certain sectors experienced headwinds during the period. The iron and steel industry faced pressure due to declining global prices and increased imports from China, which affected overall sectoral performance.

The rating agency maintains an optimistic outlook for Q1 FY2026, expecting domestic demand to remain robust. 

Rural demand is projected to sustain its healthy trajectory, while urban consumption is anticipated to recover, supported by income tax relief measures, reduced food inflation, and lower equated monthly installment burdens resulting from interest rate reductions.

Despite these positive domestic indicators, the report cautioned that ongoing geopolitical tensions may adversely impact export-oriented industries. 

Sectors including agro-chemicals, textiles, automotive components, cut and polished diamonds, and information technology services could face challenges in international markets.

The corporate sector demonstrated strong performance in Q4 FY2025, with India Inc's operating margins expanding by 63 basis points to reach 18.5 percent, marking the highest level since Q4 FY2022. 

This improvement was attributed to strong demand conditions, enhanced operating leverage, and moderate input cost pressures. On a sequential basis, operating profit margins improved by 41 basis points.

The financial health of companies across industrial, capital goods, and construction sectors showed marked improvement throughout FY2025. 

Reduced debt levels combined with higher profitability contributed to better gearing ratios and improved debt-to-operating profit metrics across these sectors.

Looking forward, India Inc's profit margins are expected to maintain stability in Q1 FY2026, underpinned by enhanced consumer sentiment, stable input costs for key commodities including crude oil, coal, and steel, and reduced borrowing expenses across the corporate sector.

(KNN Bureau)