New Delhi [India] – India’s construction sector is projected to grow by 7.0–7.5% in the financial year 2026, according to credit rating agency ICRA. This follows nearly a decade of consistent expansion, during which the sector grew at an average annual rate of 6.9% between FY2016 and FY2025.
ICRA has maintained a stable outlook for the sector in FY2026, supported by a robust pipeline of infrastructure projects, strong order book visibility, and sustained public capital expenditure (capex). However, ongoing competitive pressures and delays in project execution are expected to limit profitability, even as revenues begin to recover from FY2025 lows.
Despite positive growth expectations, ICRA has revised revenue projections downward to 6–8%, from the previously estimated 8–10%. This revision is attributed to persistent headwinds in road project awards and a slowdown in project execution under the Jal Jeevan Mission. In contrast, urban infrastructure and irrigation are expected to lead the sector’s performance in the current fiscal.
The average order book-to-operating income (OB/OI) ratio for ICRA’s sample companies remains strong, estimated at 3.5x as of March 31, 2026, up slightly from 3.4x in the previous year, providing healthy medium-term revenue visibility.
Key Insights and Sector Dynamics
Suprio Banerjee, Vice President and Co-Group Head of Corporate Ratings at ICRA, stated:
“Order inflows in FY2025 declined by 19% year-on-year, primarily impacted by the General Elections during the first half of the year. Contractors focused on the road segment are likely to underperform relative to broader industry trends due to reduced awarding activity from the MoRTH and NHAI.”
Banerjee added that several mid-sized road construction entities have an OB/OI ratio of less than 2.0 times—well below the industry average—indicating potential revenue stress in FY2026. Conversely, players involved in urban infrastructure and energy sectors are expected to sustain double-digit revenue growth in the current fiscal.
Increased bidding pressure has been observed across several segments. Many road projects awarded by MoRTH/NHAI were secured at significant discounts, pointing to intense competition. Similar trends are visible in the metro, water supply, and sanitation sectors, driven by new entrants expanding their portfolios.
Financial Metrics and Outlook
ICRA noted that the sector’s cash conversion cycle worsened in FY2025 following the expiration of the Atmanirbhar Bharat relief measures and payment delays under the Jal Jeevan Mission. Consequently, debt levels are projected to rise to meet working capital needs. However, interest coverage ratios are expected to remain adequate, in the 3.5–3.8x range, due to operational leverage benefits.
Operating profitability is forecast to remain in the 10.25–10.75% range for FY2026, consistent with 10.6% in FY2025, though still below the 13–14% levels recorded in FY2021. Road-focused contractors are expected to face the most pressure, while diversified EPC players, especially those active in urban and energy infrastructure, are better positioned to navigate current challenges.
Despite these hurdles, ICRA affirmed that credit quality across its rated construction portfolio remains stable, with rating upgrades continuing to outnumber downgrades, reflecting the sector’s resilience amid macroeconomic and execution-related headwinds.
491 words, 3 minutes read time.
About The Author
