India Inc is set to maintain its earnings recovery in Q1FY26, with operating profit margins (OPM) projected to stay stable in the range of 18.2% to 18.5%, as per a recent report by rating agency ICRA.
India Inc is poised to continue its earnings recovery into the first quarter of FY26, buoyed by sustained operating profitability, easing input costs, and supportive macroeconomic conditions. According to a recent report by rating agency ICRA, the operating profit margins (OPM) of corporate India are expected to remain steady in the range of 18.2% to 18.5%, reflecting continued resilience following a strong performance in the previous quarters.
This stability in margins is underpinned by a combination of factors, including robust domestic demand, improving rural sentiment, and the gradual easing of raw material prices. Additionally, the Reserve Bank of India’s cumulative repo rate cuts of 100 basis points are beginning to reflect positively in corporate financials, particularly in improving the interest coverage ratio, which is expected to rise to 5.1–5.2 times in Q1FY26, compared to 5.0 times in the previous quarter.
Sectoral Growth Drivers and Capex Trends
ICRA’s assessment indicates that select high-growth sectors such as electronics, semiconductors, and electric vehicles continue to benefit from capital expenditure momentum. This is largely attributed to the government’s Production-Linked Incentive (PLI) schemes, which are driving new investments and capacity expansion in these strategic sectors.
Meanwhile, the investment climate across broader industry segments remains cautious. Global economic uncertainties and persistent geopolitical tensions have led companies to adopt a wait-and-watch approach regarding large-scale expansions. Despite this, entities linked to the Indian Railways and Defence sectors are witnessing promising traction, as their robust order books begin to translate into tangible revenues and earnings.
Performance Review: Q4FY25
ICRA’s analysis of 589 listed companies, excluding financial sector entities, revealed a healthy 7.6% year-on-year (YoY) revenue growth in Q4FY25. This growth was largely driven by demand recovery across both consumption-oriented and infrastructure-oriented sectors. Segments such as consumer durables, retail, hotels, and airlines experienced a surge in demand, while infrastructure verticals like power, real estate, and construction also posted commendable performance.
However, not all sectors performed uniformly. The iron and steel industry, for instance, witnessed a decline due to weaker global demand and a surge in cheaper imports from China. Similarly, export-facing sectors such as agrochemicals, textiles, automobiles and auto components, cut and polished diamonds, and IT services remained under pressure due to global headwinds and rising geopolitical risks.
Corporate India’s operating profit margins stood at 18.5% in Q4FY25—an increase of 63 basis points YoY, and the highest recorded since Q4FY22. On a sequential basis, margins improved by 41 basis points, reflecting a strong demand recovery and relatively stable input costs, especially in sectors like power, aviation, and real estate.
Excluding low-debt sectors such as IT, FMCG, and pharmaceuticals, the overall interest coverage ratio increased to 5.0 times in Q4FY25 from 4.8 times in the same quarter of the previous year. This was driven by stable debt levels and better profitability in industrials, capital goods, and construction segments. These improvements point to a strengthening of corporate balance sheets and an enhanced ability to service debt, which is vital for sustaining future investments.
Outlook for Q1FY26
Looking ahead, ICRA remains optimistic about the near-term performance of India Inc. The expectation of continued stable operating margins is based on multiple supportive factors, including strong domestic demand, better consumer sentiment—particularly in urban markets due to recent income tax relief—and easing inflationary pressures.
Moreover, the cost outlook remains benign, with prices of key commodities such as crude oil, coal, and steel stabilizing or trending lower. This should further help companies maintain profitability, even as external uncertainties persist.
As interest rates continue to soften following the RBI’s accommodative stance, India Inc is expected to benefit from lower borrowing costs, translating into improved interest coverage ratios and greater financial flexibility. ICRA projects this metric to improve further to around 5.1–5.2 times in Q1FY26, reinforcing the positive momentum in corporate earnings.
The outlook for India Inc in the first quarter of FY26 remains broadly positive. Supported by strong fundamentals, easing cost pressures, and improved liquidity conditions, the earnings recovery that began in previous quarters is expected to sustain. While external challenges remain, especially for export-linked industries, the resilience in domestic demand and targeted policy support for key sectors provide a solid foundation for continued corporate growth.
