Export-driven sectors in India struggle as global demand weakens

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.