India’s pharmaceutical sector is expected to post steady revenue growth in FY2026, supported by resilient domestic demand and strong European exports, though risks in the US market continue to weigh on the outlook.
Ratings agency ICRA has projected overall revenue growth of 7–9 per cent for the Indian pharmaceutical industry in FY2026. Domestic revenues are forecast to expand by 8–10 per cent, aided by sales force expansion, deeper rural penetration, and new product launches. European markets are projected to grow by 10–12 per cent following a sharp 18.9 per cent rise in FY2025, driven by new launches across injectables, respiratory drugs, and nicotine-replacement therapies.
In contrast, the US market is expected to see a slowdown, with growth moderating to 3–5 per cent compared to 9.9 per cent in FY2025. Key challenges in the US include sustained price erosion, declining revenues from blockbuster drugs such as lenalidomide, and heightened regulatory scrutiny from the US Food and Drug Administration (USFDA). The outlook is further clouded by potential tariff risks, with pharmaceuticals flagged as a sector that could face inclusion under the recently imposed 50 per cent US tariffs on Indian imports. The possible implementation of the “most favoured nation” pricing policy by the US government is also viewed as a concern for Indian exporters.
Despite these headwinds, operating profitability for the sector is expected to remain stable. ICRA projects operating margins at 24–25 per cent in FY2026, in line with FY2025 levels. Margins are likely to be supported by favorable raw material prices, operating leverage, and the rising share of specialty products. Research and development expenditure is forecast to remain at 6–7 per cent of revenues, with a growing emphasis on complex molecules and specialty therapies, reflecting the sector’s pivot toward higher-value innovation.
Commenting on the domestic market’s performance, Kinjal Shah, Senior Vice President & Co-Group Head at ICRA, said that India’s home market continues to be the main growth engine. “Sales force expansion, improved productivity of medical representatives, deeper rural distribution, and new product launches are expected to support 8–10 per cent revenue growth in FY2026 in the domestic market,” she noted. Companies tracked by ICRA have already posted strong numbers, with a 10.3 per cent year-on-year increase in Q1 FY2026, following 11.6 per cent growth in FY2025. Growth has been driven by market share gains in chronic therapies, consistent product introductions, and regular price hikes, even though overall branded generic volumes have shown subdued expansion due to rising genericization.
Policy developments are expected to further aid affordability and access. Recent GST exemptions and rate reductions on critical medicines, diagnostics, and medical supplies are anticipated to ease patient out-of-pocket costs and support healthcare inclusion goals. This aligns with the government’s broader focus on universal health coverage and improving availability of essential therapies across the country.
On the investment front, ICRA projects total capital expenditure for its sample set of companies at ₹42,000–45,000 crore in FY2026, with around ₹25,000 crore likely to be allocated to inorganic expansion, including acquisitions. Leverage is expected to rise modestly, with Total Debt/OPBITDA increasing to 1.1–1.2 times by March 2026, up from 0.8 times in FY2025. Liquidity, however, is projected to remain robust, with companies maintaining strong cash reserves and liquid investments.
ICRA has maintained a stable outlook on the pharmaceutical sector, citing resilient domestic demand, steady earnings, and healthy balance sheets. While the US market will remain an area of caution for Indian drugmakers, strong domestic fundamentals, expanding European opportunities, and ongoing investment in specialty products and R&D provide a solid base for sustained sectoral growth in FY2026.
