India's Construction Sector Set to Grow by 7–7.5% in FY2026: ICRA Forecasts Cautious Optimism Amid Execution Challenges


Steady Growth Expected in FY2026

India's construction sector is projected to grow at a pace of 7.0–7.5% in FY2026, according to a recent outlook by ICRA, one of the country’s leading credit rating agencies. This follows a decade of consistent growth, with the sector recording an average annual expansion of 6.9% between FY2016 and FY2025.

The outlook remains “Stable”, underpinned by:

  • A healthy pipeline of infrastructure projects

  • Strong visibility in the order book

  • Continued emphasis on public capital expenditure (capex)

However, profitability improvements may remain subdued due to high competitive intensity and delays in project execution.

Revenue Growth Estimates Revised Downward

While the sector remains on a growth trajectory, ICRA has revised its revenue growth forecast for FY2026 to 6–8%, lower than the earlier estimate of 8–10%.

This downward revision is attributed to:

  • Slowdown in road-awarding activity, particularly by the Ministry of Road Transport and Highways (MoRTH) and NHAI

  • Delays in project execution under the Jal Jeevan Mission (JJM)

In contrast, urban infrastructure and irrigation projects are expected to be the key growth drivers during the current fiscal.

Strong Order Book-to-Revenue Ratio Offers Revenue Visibility

ICRA’s sample companies show a strong order book-to-operating income (OB/OI) ratio, estimated at 3.5x as of March 31, 2026, compared to 3.4x a year ago, offering stable revenue visibility over the medium term.

However, road segment contractors face increased stress, with many mid-sized companies showing OB/OI ratios below 2.0x, which indicates potential strain on revenue prospects in FY2026.


Sectoral Segmentation: Roads vs. Urban Infrastructure

Suprio Banerjee, Vice President and Co-Group Head at ICRA, highlighted key trends:

  • Order inflows in FY2025 declined 19% YoY, partly due to the General Elections that affected project awards in H1 FY2025

  • Contractors primarily focused on roads are likely to underperform

  • Players active in urban infrastructure or energy sectors are expected to sustain double-digit revenue growth

Competitive Intensity Remains Elevated

The report points out heightened competition across key sub-segments:

  • Many MoRTH/NHAI projects were awarded at significant discounts to base prices

  • Segments like metro, water supply, and sanitation are also facing competitive pressures due to an influx of new entrants

This fierce bidding environment is expected to compress margins, even though stable commodity prices and operating scale could offer some protection.

Elongated Cash Cycle and Working Capital Stress

ICRA notes that the cash conversion cycle has worsened in FY2025.
Key reasons include:

  • Expiry of Atmanirbhar Bharat relief measures

  • Delays in payments, particularly under Jal Jeevan Mission

This has led to increased working capital needs, likely pushing debt levels higher. However, interest coverage is expected to remain healthy at 3.5–3.8x, supported by operational leverage benefits.

Profit Margins and Financial Stability

Operating profitability is forecast to remain between 10.25–10.75% in FY2026, largely in line with FY2025 levels (10.6%), though below FY2021 highs of 13–14%.

  • Road-focused contractors are expected to face the sharpest pressure

  • Diversified EPC players (especially those in urban infrastructure and energy) are in a stronger position to maintain margins

Credit Quality Remains Stable Amid Sectoral Headwinds

Despite execution and macro challenges, ICRA affirms that the credit quality remains steady across its rated portfolio of construction companies.
Notably, rating upgrades continue to outpace downgrades, reflecting resilience in the sector’s fundamentals.

Conclusion: A Balanced Outlook with Sectoral Shifts

India’s construction sector is poised for measured growth in FY2026, even as execution bottlenecks, election-related disruptions, and competitive pressures weigh on margins and revenue recovery.

However, the expanding project pipeline, steady government capex, and healthy order books provide a foundation for long-term stability. For stakeholders, the key lies in diversification, prudent capital management, and navigating competitive dynamics to emerge stronger in this pivotal year.


Location: Pune, Maharashtra, India

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