A prolonged conflict in West Asia could shave nearly 200 basis points off India Inc’s operating profitability this fiscal, even as overall corporate credit quality remains resilient due to stronger balance sheets and sustained domestic demand, Crisil Ratings said on Monday.
In a stress test covering 34 sectors accounting for around 65% of its rated corporate debt, the ratings agency said companies are grappling with supply-chain disruptions, elevated fuel and freight costs, pricing pressures and a depreciating rupee as the geopolitical crisis stretches into its third month.
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Crisil said it assumed crude oil prices averaging $110 per barrel this fiscal under the stress scenario, compared with its earlier base-case assumption of $95 per barrel, along with prolonged supply disruptions lasting nine months.
“Managing costs and profitability will be a bigger challenge than achieving topline growth,” said Subodh Rai, Managing Director, Crisil Ratings.
According to the agency, 22 of the 34 sectors analysed could witness operating profitability decline by more than 10% because of higher inventory costs and limited ability to fully pass on rising expenses to consumers immediately.
However, Crisil said robust corporate balance sheets would cushion the impact on credit quality. It expects only eight sectors, accounting for around 10% of rated corporate debt, to see material pressure on credit profiles.
India Inc’s median gearing has halved over the past decade to around 0.5 times as of March 2026, while interest coverage has doubled to over five times, giving companies sufficient financial flexibility to absorb profitability shocks, the report noted.
The ceramics sector is expected to face the sharpest stress, with revenue potentially falling by more than one-third and profitability halving due to gas shortages and supply disruptions.
Airlines are also likely to come under severe pressure from airspace closures, higher aviation fuel prices and rupee depreciation, with profitability estimated to decline by around 50%.
Other sectors facing moderately negative impact include polyester textiles, specialty chemicals, flexible packaging, auto components, diamond polishing and basmati rice exports.
Crisil said crude-linked industries would struggle to fully pass on higher raw material costs, while auto component makers may face delayed pass-through of increased freight and input expenses.
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At the same time, export-oriented sectors such as pharmaceuticals, readymade garments, textiles, shrimp processing and electronics manufacturing could benefit from rupee depreciation.
The agency added that most Indian companies either maintain natural hedges through trade flows or have adequate forex cover, limiting the impact of currency volatility. It also noted that foreign-currency borrowings form a relatively small and largely hedged portion of India Inc’s debt.
Crisil maintained a “stable but cautious” outlook on overall corporate credit quality, warning that any prolonged escalation in the conflict could worsen inflationary pressures and disrupt demand further.
“While our outlook for India Inc’s credit quality remains stable, supported by strong corporate balance sheets and steady domestic demand, we maintain a cautious stance because of the uncertain trajectory of the West Asia conflict,” said Somasekhar Vemuri, Senior Director, Crisil Ratings.
Sectors where Crisil sees operating profitability declining more than 10% under the West Asia stress scenario:
- Ceramics
- Airlines
- Polyester textiles
- Diamond polishers
- Specialty chemicals
- Flexible packaging
- Auto components
- Basmati rice
- Diversified large EPC
- Consumer durables
- PVC pipes
- Paints
- Auto CV
- Construction — roads and bridges
- Logistics
- Fertilisers
- Agro chemicals
- Auto PV
- Oil — downstream
- Tyres
- FMCG
- Cement
