New Delhi [India], November 25 : India Inc is poised for a healthy revenue growth of 8-10 per cent year-on-year (YoY) in the third quarter of financial year (FY) 2026, marking continued stability after the 9.2 per cent rise in the previous quarter. The outlook, as per rating agency ICRA, points to firm rural demand and expectations of a revival in urban demand as the key drivers.
The ICRA release states that softer input costs, including crude oil and coal, are likely to ease pressure on companies. This is expected to help operating profit margins improve by 50-100 basis points on Year-on Year (YoY) basis. With this, credit metrics may show slight strengthening, with the interest coverage ratio estimated at 5.3-5.5 times in Q3 FY2026, up from 5.0 times in Q2 FY2026.
Kinjal Shah, Senior Vice President & Co-Group Head - Corporate Ratings at ICRA, says rural spending continues to hold steady, while several policy steps are supporting sentiment in cities.
"Domestic rural demand remains resilient, and tailwinds like GST rate rationalisation, income tax relief announced during the Union Budget 2025, 100 bps interest rate cut by the Reserve Bank of India between February 2025 and November 2025 (leading to lower borrowing costs) and easing food inflation are expected to boost urban consumption," she says.
She also notes that geopolitical tensions and steep US tariffs are hurting export-linked sectors, including agro-chemicals, textiles, auto components, seafood, cut and polished diamonds and IT services.
ICRA's study shows that revenue in Q2 FY2026 grew due to strong demand in retail, hotels, autos, capital goods, and cement. But the quarter also saw a slowdown in some areas. Oil and gas, airlines and power faced seasonal dips. Consumer durables and FMCG companies faced weaker demand amid expectations of GST rate rationalisation. IT services struggled with cautious US client spending.
The extended monsoon further affected demand across several sectors. Shorter summer months pulled down sales of air conditioners, beer and certain dairy products. Agrochemical firms saw lower spraying activity. Even some hospitals reported cancellations of scheduled surgeries due to heavy rains, which restricted movement.
US tariffs added another layer of stress. Auto component exporters recorded a drop in offtake from American automakers. Textile exporters held on to market share by absorbing part of the tariff hit, causing pressure on margins.
Despite slow urban demand over the past year and a half, early signs of premium-product buying and expansion by organised players in hospitality, healthcare and gold jewellery retail are helping maintain headline growth. In Q2 FY2026, India Inc's operating profit margin rose to 16.1 per cent, with telecom, cement and oil and gas showing improvement. Fertilisers, construction and retail, however, saw margin drops.
Looking ahead, ICRA expects private capex to remain cautious amid global uncertainty and tariff-related issues. Still, sectors such as electronics, semiconductors, data centres and parts of the electric vehicle ecosystem are likely to see continued investments. Government spending is also expected to support overall investment momentum, though the pace may soften in the second half of FY2026.