India Inc is expected to achieve healthy revenue growth in the second quarter of financial year 2026-27, but profitability could be hit by large input and operating costs. In Q2 FY27, ICRA Ratings believes that the overall revenue growth of Indian companies will be 13-15% as compared to 21.3% in the April-June quarter.
To put it simply, the domestic rating agency expects the earnings cycle to show a clear divergence between revenue growth and profitability. While business can certainly depend on relatively resilient domestic demand, the operating margins may be adversely affected in the near future by increasing raw material, fuel, freight, and packaging costs.
India Inc Revenue Growth to Moderate
ICRA Ratings expects India's corporate revenue growth to slow in the September quarter from the exceptionally strong performance witnessed in Q1 FY27. The moderation is expected to reflect persistent weakness in global demand and uneven performance across different sectors.
ICRA Group Head of Corporate Ratings Jitin Makkar said domestic consumption-based sectors such as automobiles, retail, consumer durables and hospitality are expected to perform better than export-oriented segments.
On the other hand, sectors with more exposure to global demand– information technology, apparel and home textiles and cut and polished diamonds– could face greater challenges.
The agency said the global demand environment remains weak and could put export-oriented businesses at risk. Domestic demand is expected to be relatively resilient, and that will help to support companies that cater to the Indian market.
Operating Margins May Compress
Despite a potential growth in revenue, profitability is a big concern for Indian companies. ICRA estimates that aggregate operating profit margins could fall by 1-1.5 percentage points in Q2 compared to the year-ago period.
Higher raw materials, fuel, freight and packaging costs are expected to impact margins. And companies in energy-intensive industries could be particularly exposed as commodity and logistics costs are high.
The agency highlighted the impact of higher crude oil and derivative prices, palm oil, coal and other commodities on aviation, automobiles, FMCG and cement.
But companies are taking pricing measures to offset some of the cost pressures. ICRA reports that businesses are trying to pass on higher expenses arising from the West Asia conflict and the depreciation of the Indian rupee against the US dollar.
Rural Demand Faces Additional Risks
If agricultural production and consumption are affected by weather conditions, the rural economy could face additional headwinds. ICRA identified the below-normal monsoon outlook for August-September as a risk to agricultural production and rural spending.
Lower agricultural output could affect rural consumption, and a rise in food inflation could further complicate the operating environment for companies depending on rural demand.
If these risks take place during the quarter, rural-based businesses and agri-based sectors will face pressure on revenue and margins.
Refining Companies Under Margin Pressure
Oil refining companies are also expected to be under pressure during Q2 FY27. ICRA said refiners could face challenges from underrecoveries on petroleum products and thinner marketing margins.
The volatility of commodity prices and the refining economics can limit profitability even when revenue is relatively strong.
However, not all sectors are expected to feel the same margin pressure.
Metals, Telecom And Utilities Better Positioned
ICRA identified metals and mining companies, upstream oil producers, telecom operators, and select utilities as relatively better placed from a margin perspective.
Such sectors could benefit from favourable realisations, operating leverage or the ability to pass higher costs through to customers. Such factors might help offset some of the wider cost pressures affecting corporate India.
The agency's assessment suggests that the Q2 earnings season could in fact lead to a wide range of results for different sectors and domestic-demand businesses, and companies with more powerful pricing power might be better positioned for performance during the sector.
Credit Metrics Remain Resilient
Despite the expected decline in operating margins, ICRA does not expect India Inc's credit profile to suffer much damage or to be significantly deteriorated. ‘Corporate credit metrics are likely to remain resilient to the margin environment,’ the agency said.
Jitin Makkar characterized the Q2 FY27 corporate earnings cycle as one likely to witness a divergence between healthy revenue growth and constrained operating profitability, similar to the trend observed in Q1 FY27.
The September quarter will certainly be a mixed one for Indian companies. Revenue growth will likely remain in double digits, supported by domestic consumption, but higher input costs, global demand weakness, weather-related risks and currency depreciation could restrict profit expansion.
In the upcoming earnings season, investors will want to focus on operating margins, pricing power, cost management and sector-specific demand trends more than revenue growth.
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