Broad-based earnings resilience of India Inc. offsets oil-sector weakness in Q1 2026-27: ICRA

Rating agency ICRA’s review of results announced so far suggests that India Inc. began 2026-27 on a firmer footing than anticipated, with aggregate revenues of its sample set of 838 listed companies growing 22% YoY in Q1, accelerating from 13% YoY growth in the preceding quarter. The increase was driven by commodity- and bullion-price-led value inflation, the sustained demand boost from GST rate cuts last year that continued to support the automobile sector, and resilient overall consumption volumes, despite the West Asia flare-up and concerns over El Niño. 

However, aggregate operating profit margin (OPM) contracted by more than 200 basis points (bps) YoY in Q1 2026-27, while net profits remained broadly flat, mainly due to the oil-refining sector. Elevated crude prices and under-recoveries on LPG and petroleum products weighed on profitability. Excluding oil & gas, OPM remained stable at 19% while net profits grew by more than 20% YoY. IT services remained a soft spot, with constant-currency growth subdued. Revenue growth also lagged in domestic cyclicals such as cement and sugar, as well as export-oriented sectors such as textiles and auto components. 

Jitin Makkar, Senior Vice President & Group Head–Corporate Ratings, ICRA Limited, said: “Though concerns over a demand-and-cost shock weighed on sentiments at the beginning of the quarter, the eventual impact was limited. Consumption-led sectors were among the key growth drivers. While automobile original equipment manufacturers (OEMs) recorded the strongest revenue growth, several other consumer-oriented sectors, including FMCG, consumer durables, apparel and grocery retail, jewellery retail and quick-service restaurants, also reported healthy performance. Growth was supported by market penetration and calibrated pricing actions, along with improved value propositions, which translated into stronger same-store sales growth for many players." 

“The pressure was concentrated in sectors such as oil refining and aviation, where elevated and volatile crude prices compressed margins. In contrast, commodity-linked sectors, particularly metals and non-ferrous metals, benefited from firmer global prices, driving increases in both revenues and margins. The chemicals sector, after an extended period of weakness, also showed early signs of cyclical improvement. IT services remained the principal soft spot, with constant-currency growth staying subdued amid cautious technology spending globally," he said. 

Commodity price inflation was a key influence on profitability during the quarter, although its impact varied across sectors depending on pricing power, contractual structures and the ability to offset higher input costs through operational efficiencies. For instance, passenger vehicle OEMs reported strong YoY double-digit revenue growth of more than 25% in Q1 2026-27, but their EBITDA margins contracted by 200 bps as they chose not to pass on the full burden of higher raw-material, energy, labour, and freight costs to customers. 

The upcoming festive season could provide an opportunity for auto OEMs to raise vehicle prices, leveraging potentially lower price elasticity of demand during the period. In contrast, several FMCG companies and electrical and electronics manufacturers passed on almost the entire increase in costs to customers, protecting their margins. 

Another factor that weighed on the credit profiles of entities in Q1 2026-27, as in the preceding quarter, was the sharp depreciation of the INR against the USD. Several companies reported forex losses due to higher import costs and the impact of ineffective hedges. 

The investment cycle remained a key positive during the quarter. The Centre’s capital expenditure rose 24% YoY to ₹3.4 lakh crore in Q1 2026-27, accounting for 28% of the full-year budgeted target. Spending was focused on railways, defence and capital transfers to states. New project announcements reached a multi-quarter high, driven by emerging sectors such as data centres, electronics manufacturing and nuclear power. 

Private-sector investment activity remained selective, with traction concentrated in defence, electric mobility and the data-centre value chain. India Inc.’s balance sheets also remained comfortable. While debt figures for the quarter ended June 2026 are not yet available, the improving trend in interest coverage ratios points to a steady credit profile for mid- to large-sized entities. Around two-thirds of the 116 sectors in ICRA’s sample reported an improvement in their interest coverage ratio in Q1 2026-27 compared with Q1 2025-26. 

“Looking ahead, renewed geopolitical tensions in West Asia, the consequent volatility in crude oil and commodity prices, and an uncertain global trade environment will remain key monitorables. Nevertheless, healthy balance sheets and comfortable credit metrics of Indian corporates provide a meaningful cushion against potential earnings volatility and near-term external shocks,” Makkar added.