ICRA Predicts Strong 7–7.5% Growth for India’s Construction Sector in FY2026

India’s construction industry is set to grow by 7.0 to 7.5 per cent in the financial year 2026, according to a new report from credit rating agency ICRA. The industry has already shown consistent improvement, growing at an average of 6.9 per cent per year from 2016 to 2025.

Growth Supported by Strong Orders and Public Spending

ICRA has maintained a stable outlook for the sector in FY2026. This is due to a strong pipeline of infrastructure projects, clear visibility on orders, and continued government investment. However, the agency also warned that high competition and delays in execution may slow down profits, even as companies try to recover revenues after a weak FY2025.

While revenue was earlier expected to grow by 8–10 percent, ICRA has now revised it down to 6–8 percent. This is because of slower road project allocations and delays in water-related works under the Jal Jeevan Mission. On the positive side, urban infrastructure and irrigation projects are likely to lead growth this year. The order book to operating income (OB/OI) ratio—a key metric that shows future business potential—remains strong at 3.5 times, up from 3.4 times in the previous year.

Elections and Road Project Slowdown Affect Growth

Suprio Banerjee, Vice President and Co-Group Head at ICRA, said that order inflows dropped 19% in FY2025, mostly due to the General Elections in the first half of the year. Road-focused contractors are likely to lag behind because the Ministry of Road Transport and Highways (MoRTH) and NHAI slowed down new project awards.

He added that several mid-sized road builders have order books smaller than 2 times their revenue, which may hurt their income in FY2026. In contrast, companies working in urban and energy infrastructure may still see double-digit growth this year. There is also more bidding pressure across the board. Most road projects were awarded at lower prices, showing that companies are competing aggressively. Similar issues are seen in metro, water supply, and sanitation projects, where many new players are entering the space.

Profit Margins, Debt and Industry Outlook

Because of this heavy competition, profit margins may stay low, even though stable raw material costs and bigger project volumes may help. ICRA also noted that the cash conversion cycle—how fast companies get paid—has gotten longer in FY2025. This is due to the end of Atmanirbhar Bharat support and slower payments under the Jal Jeevan Mission.

As a result, companies may need to borrow more to cover their daily working needs. Still, thanks to better operational efficiency, they are expected to maintain a good interest coverage ratio between 3.5 and 3.8 times in FY2026. Overall, ICRA continues to see a stable financial position for the construction industry. Profit margins are likely to stay between 10.25% and 10.75% in FY2026, close to the 10.6% seen in FY2025, though much lower than the 13–14% seen in FY2021.

Companies focusing only on road construction are expected to face more pressure, while diversified EPC firms working in urban and energy sectors may be better placed to handle current challenges. Despite the difficulties, ICRA said that most companies it tracks still have stable credit ratings, with more upgrades than downgrades—showing the sector’s ability to hold up under pressure.