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Domestic rating agency Crisil reported that the profitability of Indian industries has reached its highest level in a decade. However, despite this significant financial growth, private-sector capital expenditure (CapEx) is unlikely to see a sustainable rise.
Crisil attributes this growth to softening commodity prices, which have helped Indian businesses maintain high margins. The agency forecasts that Indian industry will witness profit growth for the third consecutive year in the upcoming financial year (2025-26).
An analysis of 800 companies (excluding banking, finance, and the oil & gas sectors) indicates that the pre-tax profit margin is expected to rise to 20% in 2025-26.
Government Driving Investments, Private Sector Hesitant
Over the past few years, the Indian government has been the biggest investor in the economy. There is also increasing demand for corporate CapEx improvements. However, instead of investing in expanding capacity, Indian businesses have prioritized debt repayment and financial restructuring, despite operating at high capacity utilization levels.
According to D.K. Joshi, Chief Economist at Crisil, companies currently have the financial ability to invest but lack the willingness to do so.
Indian Companies’ Income Growth Expected to Reach 8% in 2025-26
Crisil highlights that global economic uncertainties and disparities in domestic demand are key reasons for companies’ reluctance to invest. The agency projects that Indian companies' income growth will rise to 8% in the next financial year (2025-26), compared to an estimated 6% in the current year (2024-25).
Unlike previous years, this growth will not be driven by price hikes but rather by higher sales volume, indicating a shift in market dynamics.
