Despite Tariffs Bite, Festive Spending, GST Relief To Brighten India Inc's Q3 Growth - BW Businessworld

India Inc is expected to report healthy revenue growth of 8-10 per cent year-on-year (YoY) in the third quarter of fiscal 2025-26, supported by resilient rural demand, festive-season spending, and GST rationalisation, Icra has said. Earlier, the rating agency had predicted modest YoY revenue growth of 5-6 per cent for the second quarter.

The agency projects that operating profit margins (OPM) will improve by 50-100 basis points YoY, driven by softening commodity prices, including crude oil and coal. Interest coverage ratios are likely to rise slightly to 5.3-5.5 times, up from 5.0 times in the previous quarter.

“Domestic rural demand remains resilient and tailwinds like GST rate rationalisation, income tax relief announced during Union Budget 2025, the 100 bps Reserve Bank of India rate cut between February and November 2025, and easing food inflation are expected to support urban consumption,” said Kinjal Shah, Senior Vice President and Co-Group Head – Corporate Ratings at Icra.

Challenges From Global Tensions
The rating agency warned that ongoing global uncertainties and steep US tariffs continue to weigh on export-oriented sectors, including agro-chemicals, textiles, auto components, seafood, cut and polished diamonds, and IT services. Notably, Icra's analysis of 2,966 listed companies, excluding financial sector entities, showed 9.2 per cent YoY revenue growth in Q2 FY2026.

According to Icra, US tariffs specifically affected Indian exporters differently. Auto component shipments to the US saw reduced volumes, while textile exporters absorbed part of the tariff impact to retain market share, resulting in margin compression. Global Trade Research Initiative (GTRI) stated that India’s exports to the United States plunged 37.5 per cent between May and September 2025, slipping from USD 8.8 billion to USD 5.5 billion.

In August, US President Donald Trump signed an executive order imposing an additional 25 per cent tariff on imports from India, raising the total duty to 50 per cent. The move followed Washington’s conclusion that India continues to import oil from Russia, directly or indirectly. Earlier, India's Chief Economic Adviser V. Anantha Nageswaran told Bloomberg that the tariffs could lower India’s gross domestic product (GDP) by 0.5-0.6 per cent in the current fiscal year.

Growth was led by consumption-focused sectors such as retail, hotels and automobiles, alongside infrastructure-oriented sectors like capital goods and cement. Sequential growth slowed to 2.5 per cent, impacted by seasonal softness in oil and gas, airlines, and power, as well as deferred consumer durables and FMCG purchases ahead of anticipated GST changes.

A sector review by Motilal Oswal Financial Services (MOFSL) revealed that India’s consumer sector reported a broad but uneven recovery in the September quarter of FY26, led by jewellery and liquor categories that benefited from festive spending and premiumisation, while staples, paints and innerwear showed early signs of stabilisation after a period of disrupted demand.

Across MOFSL’s consumer universe of around 60 listed companies, which together reported revenue of Rs 1.2 trillion in 2QFY26, overall revenue grew 8 per cent year-on-year, while EBITDA rose 4 per cent. For the first half of FY26, revenue growth stood at 10 per cent and EBITDA at 3 per cent.

The report said the festive calendar helped revive discretionary spending and lifted consumer sentiment, particularly in jewellery, liquor, paints and quick-service restaurants (QSRs), although recovery remained inconsistent across categories and regions. Jewellery recorded the strongest performance among all consumer categories, with revenue up 26 per cent and EBITDA up 25 per cent. Titan, Kalyan Jewellers and PNG were key outperformers, supported by wedding-linked buying and higher demand for premium gold and studded products, MOFSL stated.

A report by Axis Direct revealed that a FMCG pick-up is expected only from the second half of FY26 on account of recent GST 2.0 reforms, easing inflation, interest rate cut and above-normal monsoon. Rural consumption continues to outperform, aided by easing inflation, higher minimum support prices (MSPs) and increased government spending, with a more broad-based recovery expected in H2FY26. 

The report highlighted that on the gross margins front, most companies reported muted performance during the last quarter. “Indian FMCG companies are on a structural growth path, with several categories like shampoos and premium detergents still under-penetrated and underserved. Increasing rural penetration further strengthens the sector’s growth potential,” the report pointed out.

Prolonged Monsoon And Revenue Growth
The unusually prolonged monsoon in Q2 FY2026 further weighed on revenue growth, particularly for air conditioners, beer, value-added dairy products and agrochemicals. Hospitals in some regions also reported cancellations of planned surgeries. India’s economic activity growth eased sharply to a 14-month low in October 2025, dragged by excess rains, US tariff-related disruptions and an unfavourable festive-season comparison base, Icra said in its business activity monitor report.

Urban demand growth over the past 18-20 months has been muted, but shifts towards premium products and expansion strategies, such as acquisitions in hospitality, hospitals, and gold jewellery retail, supported headline revenue growth despite soft volume increases.

According to Icra, corporate India reported a YoY OPM rise of 140 basis points to 16.1 per cent in Q2 FY2026. Margins expanded in telecom, cement and oil & gas due to improved demand and realisations, offset partially by contractions in fertilisers, construction and retail. Sequentially, OPM remained broadly flat due to seasonally lower profitability in sectors including retail, hotels, metals & mining, cement and airlines. Interest coverage improved YoY to 5.0 times from 4.1 times, with operating profit growth offsetting higher interest from capex and working capital.

Icra expects private sector capital expenditure to remain cautious amid global uncertainties, though electronics, semiconductors, data centres and segments of the automotive sector such as electric vehicles are likely to see continued investment growth. Government capex is also expected to support overall investment activity, although headroom for further expansion may be limited in the second half of FY2026 following front-loaded spending in H1.

“Festive demand, softer input costs, and supportive fiscal measures provide a positive backdrop for India Inc., but external challenges such as tariffs and geopolitical tensions will continue to influence performance,” Shah added.