According to Crisil Ratings, India Inc is likely to remain resilient despite prolonged geopolitical tensions in West Asia, backed by strong balance sheets, stable domestic demand and continued government capital expenditure. However, sustained supply-chain disruptions and elevated crude oil prices could reduce corporate operating profitability by nearly 200 basis points this financial year. The rating agency conducted a stress test across 34 sectors, which together account for 65 per cent of its rated corporate debt portfolio, as the West Asia conflict entered its third month with no clear resolution in sight. As noted by Crisil, managing costs and profitability will be a bigger challenge than achieving topline growth in the current environment.
Under its stress scenario, Crisil assumed supply-chain disruptions would continue for nine months in FY27, compared with six months in its base case, while crude oil prices would average $110 per barrel against its earlier estimate of $95. As reported by Crisil, operating profitability across companies could fall to nearly 10 per cent from the pre-conflict expectation of around 12 per cent this fiscal. Of the 34 sectors stress-tested, 22 would see operating profitability being culled more than 10% due to higher inventory costs and inability to fully pass on the burden to consumers immediately. According to Subodh Rai, managing director at Crisil Ratings, managing costs and profitability will be a bigger challenge than achieving topline growth in the current environment.
According to Crisil, only eight sectors, accounting for around 10 per cent of rated corporate debt, were expected to see a material impact on credit quality. The ceramic industry is expected to face the sharpest stress due to gas shortages and supply-side disruptions, which could cut revenue by nearly one-third and halve profitability. The airline sector could witness pressure from airspace closures, higher aviation fuel prices and rupee depreciation, while sectors linked to crude oil such as polyester textiles, specialty chemicals and flexible packaging may struggle to pass on rising input costs immediately. Auto component manufacturers may face delayed pass-through of higher freight and raw material costs, while diamond polishers could see procurement expenses rise because of sourcing through alternative trade hubs. Basmati rice exporters are also expected to face weaker demand from key overseas markets.
As reported by Crisil, corporate India's median gearing has fallen to nearly 0.5 times as of March 2026, while interest coverage has more than doubled to above five times over the past decade. Despite the margin pressures, the agency noted that credit quality risks would remain manageable because of low gearing levels and healthy demand conditions. Export-oriented sectors such as pharmaceuticals, textiles, readymade garments, shrimp processing and electronics manufacturing may benefit from the rupee's depreciation, while basmati rice exporters are expected to face weaker demand from key overseas markets.
According to Crisil, while its outlook for India Inc's credit quality remains stable, supported by strong corporate balance sheets and steady domestic demand, it maintains a cautious stance because of the uncertain trajectory of the West Asia conflict. The agency added that a prolonged conflict and extended stabilisation period could intensify inflationary pressures and weaken demand further, making fuel prices and the duration of the conflict key monitorables for assessing corporate credit quality. As noted by Somasekhar Vemuri, Senior Director at Crisil Ratings, a prolonged conflict and extended stabilisation period could intensify inflationary pressures and weaken demand further, making fuel prices and the duration of the conflict key monitorables for assessing corporate credit quality. The report also warned that sustained high oil prices could increase inflationary pressure in India, which may affect consumer spending and economic growth if the situation worsens further.
