Mumbai: India’s export-oriented industries are facing
sustained pressure amid weakening global demand, with sectors such as
agro-chemicals, textiles, auto components, seafood, cut and polished diamonds,
and information technology (IT) services reporting subdued performance.
According to ICRA’s latest quarterly outlook, the impact of ongoing
geopolitical tensions and elevated US tariffs continues to weigh heavily on
external trade sentiment, even as domestic consumption shows signs of
resilience.
The credit
rating agency expects India Inc. to post modest year-on-year revenue growth of
5–6% in the second quarter of FY2026, broadly in line with the 5.5% increase recorded
in the first-quarter. This growth is largely attributed to firm rural demand
and structural shifts favouring organised players and premium product
categories. However, the export-facing segments remain a drag on overall
performance, with limited visibility on near-term recovery.
Kinjal
Shah, senior vice president and co-group head – Corporate Ratings at ICRA,
noted that while rural consumption has held up, urban demand is yet to recover
meaningfully. Despite supportive factors such as income tax relief and easing food
inflation, sentiment remains cautious. Shah added that the anticipated
rationalisation of Goods and Services Tax (GST) rates could offer some
stimulus, but uncertainty around its structure may lead to deferred
discretionary purchases, potentially pushing demand into the latter half of the
fiscal year.
ICRA’s
analysis covers 585 listed non-financial companies, whose aggregate performance
in the first-quarter FY2026 reflected the broader trends. Revenue growth was
driven by consumption-linked sectors including consumer durables, retail, hotels,
and gems and jewellery, as well as infrastructure-oriented industries such as
cement, capital goods, and construction. These segments had posted muted
results in the same quarter last year due to election-related disruptions.
Sequentially,
however, revenues declined by 4.1% in the first-quarter following a seasonally
strong fourth-quarter. The drop was led by sectors such as real estate,
construction, capital goods, hotels, and airlines. Export-heavy industries,
meanwhile, continued to struggle with weak demand and pricing pressure. In
particular, agro-chemicals and textiles have been hit by inventory overhangs
and sluggish orders from key markets, while seafood and diamond exports remain
vulnerable to trade restrictions and shifting consumer preferences abroad.
The IT
services sector, traditionally a strong performer, has also seen a moderation
in growth due to delayed client spending and cautious hiring in developed
markets. Auto component manufacturers are grappling with lower export volumes
and margin compression, exacerbated by currency volatility and elevated input
costs.
Despite
these challenges, India Inc.’s operating profit margins are expected to remain
steady in the 18–18.2% range in the second-quarter, supported by softening
commodity prices including crude oil and coal. In the first-quarter, margins
stood at 18.1% year-on-year, with gains in telecom, cement, and real estate
offset by declines in auto, consumer durables, and metals and mining. On a
sequential basis, margins fell by 28 basis points, with sectors such as hotels,
power, and capital goods affected by cost pressures and the early onset of
monsoons.
Interest
coverage ratios are projected to improve slightly to 4.9–5.1 times in the
second-quarter, up from 4.9 times in the first-quarter, aided by festive season
demand and gradual transmission of policy rate cuts. However, ICRA notes that
higher working capital requirements have led to increased interest costs,
particularly in sectors with elevated inventory levels and delayed receivables.
Private
sector capital expenditure remains cautious, with the uncertain global
environment prompting delays in broader investment cycles. Nonetheless, select
areas such as electronics, semiconductors, and electric vehicles continue to
attract capital, supported by targeted policy incentives and long-term growth prospects.
Government spending is expected to provide some support to overall investment
activity, although the scope for further expansion may narrow in subsequent
quarters following front-loaded outlays in the first-quarter.
The outlook
for export-oriented sectors remains clouded by external risks, and any
meaningful recovery will depend on stabilisation in global trade conditions and
improved demand from key markets. In the interim, domestic consumption and
structural shifts within India’s economy are likely to remain the primary
drivers of corporate performance.
