India Inc Sees Modest 4-6% Revenue Growth in Q1 FY26, Led by Pharma, Retail, and Airlines
Photo Credit : Pexels.com
Lead: A Mixed Performance for Corporate India
Corporate India recorded a modest revenue growth of 4-6% year-on-year (YoY) in the April-June quarter of fiscal year 2026 (Q1 FY26), according to a recent Crisil Ratings report. While sectors like pharmaceuticals, communication services, organized retail, aluminium, and airlines drove this growth, challenges such as geopolitical uncertainties and an early monsoon impacted others, including IT services and automobiles. This article dives into the key findings, sector performances, and future outlook for India Inc, as outlined in the report.
Background: Understanding India Inc’s Q1 FY26 Performance
The April-June quarter (Q1 FY26) marks the first quarter of India’s fiscal year 2026, a period often scrutinized for setting the tone for corporate performance. The Crisil Ratings report, released on July 28, 2025, analyzes approximately 600 companies, representing a significant portion of India’s corporate landscape. The report highlights a slowdown from the 7% growth seen in the previous two quarters, attributing the moderation to sluggish performances in power, coal, IT services, and steel sectors, which collectively account for a third of corporate India’s revenue. Despite these challenges, certain sectors demonstrated resilience, driven by domestic demand, export growth, and operational efficiencies.
Key Sectors Driving Revenue Growth
Pharmaceuticals: A Robust Performer
The pharmaceutical sector emerged as a standout, achieving a 9-11% YoY revenue growth, outpacing the broader corporate average for the past 10 quarters. This growth was fueled by:
- Strong Export Demand: Increased demand in regulated markets, particularly the US, and reduced pricing pressures boosted export revenues by approximately 8%.
- Stable Domestic Market: Steady demand for pharmaceuticals in India supported consistent sales volumes.
- Innovation and Product Mix: Companies benefited from new product launches and a focus on high-margin formulations.
Despite this, the sector faced margin pressure due to rising raw material costs, contributing to a slight dip in overall EBITDA margins.
Communication Services: Telecom Shines Bright
The telecom sector, under communication services, is projected to achieve a robust 12% YoY revenue growth, driven by:
- Higher Subscription Plans: More expensive subscription plans, including premium 5G offerings, increased realizations by 11%.
- Lower Operating Expenses: Cost efficiencies led to a significant margin expansion of 290-320 basis points (bps) YoY, making telecom one of the top margin gainers.
This performance underscores telecom’s ability to capitalize on digital adoption and tariff adjustments, even amidst competitive pressures.
Organized Retail: Riding the Consumption Wave
Organized retail saw an impressive 15-17% YoY revenue growth, led by:
- Value Fashion and Food Segments: Strong urban demand and expansion in store networks drove sales in these categories.
- Rural Recovery: A rebound in rural demand, supported by moderating food inflation and a favorable monsoon, further bolstered growth.
Retail’s performance highlights the resilience of consumer discretionary spending, particularly in urban centers, despite macroeconomic challenges.
Aluminium: Benefiting from Demand and Costs
The aluminium sector contributed to corporate India’s growth, supported by:
- Robust Domestic Demand: Increased consumption in construction and manufacturing sectors drove sales.
- Lower Input Costs: Easing commodity prices helped improve profitability, with aluminium among the sectors showing margin expansion.
However, global price volatility remains a concern for the sector’s long-term outlook.
Airlines: Soaring with Increased Capacity
Airline revenues are projected to grow by 15% YoY, driven by:
- Increased Volume: Reduced aircraft groundings and the addition of new aircraft boosted capacity, leading to a 10-12% increase in passenger volumes.
- Rising Demand: Corporate travel, weddings, and MICE (Meetings, Incentives, Conferences, and Exhibitions) activities fueled demand.
The sector’s strong performance reflects a rebound in discretionary services, supported by operational improvements.
Challenges Weighing on Corporate India
IT Services: Flat Growth Amid Geopolitical Tensions
The IT services sector faced significant headwinds, recording flat YoY revenue growth. Key challenges included:
- Geopolitical Uncertainties: Tariff concerns and project delays, particularly in North America and Europe, slowed activity.
- Higher Operating Costs: Increased marketing and travel expenses led to a margin contraction of up to 40 bps.
Pushan Sharma, Director at Crisil Intelligence, noted, “Geopolitical uncertainties impacted the IT services sector, leading to flat YoY revenue growth due to project delays caused by tariff concerns.”
Automobiles: Inventory and Margin Pressures
The automobile sector struggled with a 4% YoY revenue growth projection, hampered by:
- Excessive Inventory: High stock levels posed challenges, though strong retail sales and exports mitigated some impact.
- Rising Input Costs: A 25% increase in aluminium prices squeezed margins by approximately 1 percentage point.
Despite these challenges, product mix adjustments and growing export demand are expected to support modest growth moving forward.
FMCG: Mixed Performance with Rural Support
The fast-moving consumer goods (FMCG) sector recorded a 4-6% YoY revenue growth, driven by:
- Rural Demand Recovery: Moderating food inflation, a favorable monsoon, and a good rabi crop harvest boosted rural consumption.
- Price Hikes: Strategic price increases supported revenue, though volume growth remained subdued.
However, rising costs of inputs like palm oil and tea led to a margin contraction of 0.5-1%.
Power and Coal: Monsoon-Induced Slump
The power sector saw an 8% YoY revenue decline, attributed to:
- Early Monsoon Impact: Cooler summers reduced electricity demand, lowering spot prices.
- Coal Demand Drop: A 2-3% reduction in coal demand further impacted revenues.
These sectors, along with steel, dragged overall corporate performance, highlighting the uneven recovery across industries.
EBITDA Margin Trends: A Mixed Bag
Earnings before interest, tax, depreciation, and amortization (EBITDA) grew by 4% YoY, but the overall EBITDA margin fell by 10-30 bps, ranging from 0.10% to 0.30%. Key observations include:
- Margin Gainers: Sectors like telecom, cement, aluminium, power, and construction saw margin expansion due to lower input costs and operational efficiencies.
- Margin Decliners: IT services, automobiles, FMCG, and pharmaceuticals faced margin compression due to higher operating costs and raw material prices.
Elizabeth Master, Associate Director at Crisil Intelligence, highlighted, “The top 10 sectors, which collectively account for over 70% of India Inc’s revenue, likely showed a mixed trend in the EBITDA margin.”
Sector Outlook for the Coming Quarters
Automobiles: A Cautious Recovery
Despite current challenges, the auto sector is expected to see a 4% revenue increase in the coming quarters, driven by:
- High Retail Sales: Strong domestic demand, particularly for passenger vehicles, will support growth.
- Export Growth: Increasing global demand and product mix adjustments will bolster revenues.
Engineering, Procurement, and Construction (EPC): Low Base Effect
EPC companies are projected to achieve 6% YoY growth, benefiting from:
- Low Base Effect: The general elections in Q1 FY25 created a lower comparison base, aiding growth.
- Government Spending: Increased infrastructure investments are expected to drive demand.
Telecom Services: Sustained Momentum
The telecom sector’s 12% revenue growth projection is supported by:
- Premium Plans: Continued adoption of higher-priced 5G plans will drive realizations.
- Cost Efficiencies: Lower operating expenses will sustain margin expansion.
Airlines: Continued Growth
Airlines are expected to maintain their 15% revenue growth trajectory, fueled by:
- Capacity Expansion: New aircraft additions and reduced groundings will increase passenger volumes.
- Demand Surge: Ongoing growth in corporate and leisure travel will support revenues.
FMCG and Tractors: Rural Resilience
The FMCG sector and related industries like tractors will benefit from:
- Rural Demand: A favorable monsoon and moderating food inflation will continue to drive consumption.
- Tractor Sector Surge: A 17% YoY revenue growth in tractors reflects strong rural recovery.
Macro Factors Influencing Performance
Geopolitical Uncertainties
Lingering geopolitical tensions, particularly tariff concerns in key export markets like the US and Europe, have impacted sectors like IT services and pharmaceuticals. These uncertainties have led to project delays and cautious client spending, affecting revenue growth.
Monsoon and Rural Demand
The early onset of the monsoon in Q1 FY26 had a dual impact:
- Negative: Reduced electricity demand and coal consumption hurt the power and coal sectors.
- Positive: Supported rural demand, boosting FMCG and tractor sales.
Commodity Prices
Easing commodity prices, particularly for aluminium and cement, supported margin expansion in these sectors. However, rising costs for inputs like palm oil and aluminium impacted FMCG and auto margins.
Final Thoughts of TheTrendingPeople
The Q1 FY26 performance of corporate India reflects a complex interplay of domestic resilience and global challenges. While pharmaceuticals, telecom, retail, aluminium, and airlines have demonstrated robust growth, sectors like IT services and automobiles highlight the vulnerabilities posed by geopolitical uncertainties and input cost pressures. The recovery in rural demand, supported by a favorable monsoon, offers a silver lining for consumer-driven sectors like FMCG and tractors. Looking ahead, strategic cost management, export diversification, and infrastructure investments will be critical for sustaining growth. TheTrendingPeople will continue to monitor these trends, providing insights into how India Inc navigates these dynamic economic conditions.