India's real GDP growth is projected to ease to 7% in the first quarter of FY27, down from 7.8% in the previous quarter, according to ICRA. While the West Asia crisis and oil refining losses are weighing on growth, underlying corporate data remains resilient. Aggregate revenue growth remains strong, though profit margins are seeing pressure due to rising input costs.
India’s economic growth is expected to moderate to 7% in the first quarter of the 2027 fiscal year, according to the latest forecast from rating agency ICRA. This projection marks a slowdown from the 7.8% growth recorded in the final quarter of the previous fiscal year and represents a four-quarter low. The estimate broadly aligns with the outlook provided by the Reserve Bank of India’s Monetary Policy Committee.
The moderation is largely linked to external pressures. The ongoing conflict in West Asia has disrupted trade and energy supplies, specifically impacting the profitability of oil refining companies. Since oil refining makes up a significant part of the nation's industrial output, losses in this sector have dragged down the overall Gross Value Added, or GVA, which measures the value of goods and services produced.
Despite the headline slowdown in GDP, the broader corporate sector has shown resilience. Data from a sample of 838 listed companies indicates that aggregate revenues grew by 22% compared to the same period last year. However, headline operating profit margins contracted by more than 200 basis points. When the oil and gas sector is excluded, profit margins were reported as stable at 19%, with net profits for these companies growing by over 20%. This suggests that while energy costs and geopolitical factors are hurting specific sectors, many businesses are managing to maintain their earnings performance.
Sector-wise performance offers a mixed picture. The services sector, which has been a major growth driver, is expected to see its GVA growth moderate to 7.9% from 9.9% in the previous quarter. On the other hand, the industrial sector has shown signs of stability, with estimated GVA growth improving slightly to 7.7%. Manufacturing volume growth hit a six-quarter high of 6.3%, although this was offset by margin pressures from rising raw material costs.
Agriculture remains a critical monitorable. Growth in this sector is projected to rise to 4%, supported by better rabi crop output. However, potential risks remain on the horizon. The impact of weather patterns, such as El Niño, could threaten rural demand and agricultural production. Furthermore, if geopolitical instability continues to push up energy and logistics costs, companies may find it difficult to pass these price increases to consumers, which could put further pressure on profit margins. Fluctuations in currency exchange rates also remain a point of concern for businesses that rely on imported inputs, as they can quickly alter operational costs.