India’s construction sector is expected to maintain steady growth over the next two financial years, even as near-term momentum moderates. Rating agency ICRA has maintained a Stable outlook on the sector, projecting 8–10% revenue growth in FY2027, marginally higher than the 6–8% growth anticipated for FY2026. The outlook reflects resilience in select infrastructure segments, balanced by continued pressure in others.
FY2027 Growth to Improve Marginally: ICRA
According to ICRA, the construction sector’s growth trajectory is likely to strengthen modestly in FY2027 after a softer FY2026. The improvement will largely be driven by urban infrastructure, irrigation, and energy projects, even as road-focused construction entities continue to face headwinds.
“ICRA expects 8-10% revenue growth for the construction sector in FY2027, which is slightly better than the 6–8% revenue growth expected in FY2026,” said Suprio Banerjee, Vice President & Co-Group Head, ICRA Ltd.
However, Banerjee cautioned that the performance will remain uneven across segments. “Road-focused construction entities will continue to see muted performance; however, construction entities focussed on urban infrastructure, irrigation and energy segment should register healthy growth.”
Diversified Players Better Positioned
ICRA’s assessment indicates that diversified construction companies are likely to benefit from a broader project mix and stable execution pipelines. In contrast, entities with a high dependence on road projects or the Jal Jeevan Mission could face challenges in the near to medium term due to slower order inflows and tighter execution timelines.
This divergence is expected to influence credit profiles, with diversified players better placed to manage volatility in individual segments while maintaining balance sheet strength.
Construction GVA Growth Moderates After Strong FY2025
After recording a robust 9.4% growth in FY2025, Construction Gross Value Added (GVA) is projected to moderate to 6.5–7.5% in FY2026. The slowdown reflects easing government capital expenditure and a deceleration across several construction-related indicators.
Construction GVA growth eased to 7.2% in Q2 FY2026 from 7.6% in Q1, though it remained above 7% for the 12th consecutive quarter, underlining underlying sector resilience.
Other indicators also showed moderation, including capital goods output, state government capital outlay, and central government capex, suggesting a more measured pace of infrastructure execution.
Order Books Remain Healthy
Despite the slowdown, order book positions remain comfortable. As of September 30, 2025, the order book-to-billing ratio stood at approximately 3.7 times, based on FY2025 operating income.
This level is considered satisfactory and indicates healthy revenue visibility over the medium term. The strong order book position provides a cushion against short-term fluctuations in project awarding and execution.
Margins to Stay Stable Despite Intense Competition
Competitive intensity in the construction sector continues to remain high. However, ICRA expects operating margins to remain largely stable, supported by operating leverage benefits and relatively stable commodity prices.
Operating margins are projected to remain in the range of 10.3–10.8% in FY2026e and FY2027P, lower than the 11.9% recorded in FY2022, but stable by recent standards.
“While the competitive intensity in the construction sector continues to remain high, the operating margins, supported by operating leverage benefits and stable commodity prices, are likely to keep margins stable,” Banerjee said.
Cash Flow Pressures to Persist
ICRA expects the cash conversion cycle to remain at levels similar to FY2025 during FY2026e. The cycle had elongated in FY2025 following the expiry of Atmanirbhar Bharat scheme-related relaxations and is likely to remain stretched in FY2026P.
This is expected to keep borrowings largely range-bound and maintain coverage indicators at adequate levels.
“ICRA expects the cash conversion cycle to remain at similar levels to FY2025 as in FY2026e, which is expected to keep the borrowings range-bound and maintain coverage indicators at adequate levels,” Banerjee added.
Stable Outlook Backed by Balanced Fundamentals
ICRA’s Stable outlook reflects expectations of steady operating income growth, moderate leverage, and comfortable coverage metrics. While growth may not match the highs seen in FY2025, the sector’s fundamentals remain resilient, supported by healthy order books and selective infrastructure demand.
