India Inc. is facing a two-speed revenue challenge in the second quarter of FY26, with core sectors showing resilience while other sectors are experiencing a collapse in their cushions. A recent CRISIL report analyzing the performance of 600 companies indicates that overall revenue for India Inc. likely grew by 5-6% year-on-year in Q2 FY26. However, this seemingly positive figure masks the underlying complexities and disparities across different sectors.
The growth is primarily driven by sectors such as cement, pharmaceuticals, and telecom. The cement sector has rebounded with an estimated 8% revenue growth, fueled by a 6-7% increase in volume due to a low base and pre-festival demand. The pharmaceutical sector is also expected to have grown by 8%, supported by export demand and stable domestic market conditions. Telecom services likely saw a 7% revenue increase due to higher prices for subscription plans, despite stagnant subscriber growth. Furthermore, the rural economy has provided a boost, with increased sales of tractors and two-wheelers, leading to revenue surges of 36% and 9% respectively for tractor and two-wheeler manufacturers.
However, several sectors are facing challenges. The information technology (IT) services sector is experiencing the weight of continuing geopolitical uncertainties, with project deferrals limiting revenue growth to a mere 1%. The steel sector's revenue is expected to have grown moderately at 4%, despite a 9% increase in volume, due to declining steel prices. The power sector's revenue likely saw only a 1% increase, affected by a surge in hydro-generation and a rise in renewable energy generation, which reduced demand for coal-based power generation. Consequently, the coal sector's revenue growth was likely flat.
Moreover, companies in sectors such as automobiles, pharmaceuticals, and aluminium have struggled to fully pass on higher input costs, resulting in compressed operating profit margins. The operating profit margins are likely to have fallen by 0.50-1% year-on-year in the second quarter. The automobile sector's margins are expected to have contracted by 1.50-2% due to rising aluminium prices, while margins for the aluminium sector likely moderated by 1-1.5% due to lower export revenues. The pharmaceutical sector is also expected to have faced margin contractions of 1.5-2% due to pricing pressure on existing products facing higher competition in export markets.
Several factors have contributed to this two-speed revenue scenario. The rationalization of goods and services tax (GST) rates created anticipation of new stock with lower prices, causing a temporary disruption in segments such as passenger vehicles and fast-moving consumer goods (FMCG). Retailers and distributors delayed FMCG purchases, while high inventory levels and sluggish retail sales affected demand for passenger vehicles in Q2. Additionally, the banking, financial services and insurance (BFSI) sector is expected to be a major drag, with flat year-on-year net profits and weak growth in net interest income.
Despite these challenges, some analysts maintain a cautiously optimistic outlook, projecting an 8% EPS growth for the Nifty 50 this year and 16% for FY27. The depreciation of the rupee is expected to benefit exporters, and cost-cutting measures may help companies maintain steady margins. Furthermore, domestic consumption is expected to cushion India's growth slowdown in the second half of the fiscal year, with festive sales projected to reach a record high. The Reserve Bank of India's (RBI) measures to ease credit flow are also expected to support economic resilience.
