India Inc's Credit Ratio Declines in H2 FY26; FY27 Outlook Cautious

Credit Ratio Moderates but Resilience Remains

The credit ratio of India Inc declined in the second half of fiscal 2026, even as the overall credit outlook for the FY27 remains stable but cautious due to the ongoing West Asia conflict, noted Crisil Ratings in its latest projections.

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The credit ratio of Indian companies, which measures the proportion of rating upgrades to downgrades, stood at 1.50 times in the second half of FY26, moderating from 2.17 times in the first half. During the period, there were 383 upgrades and 255 downgrades. Despite the moderation, corporate resilience remained visible. The reaffirmation rate improved to around 82 per cent compared with about 80 per cent in the previous half, indicating stable credit profiles for a majority of companies.

Sectoral Outlook Amid West Asia Conflict

Crisil assessed 30 sectors, which together account for about 65 per cent of rated debt, to evaluate the potential impact of the West Asia conflict. Based on an assumption that the conflict lasts for 4 to 5 months followed by stabilisation, 23 sectors, representing about 58 per cent of rated debt, are expected to remain resilient.

Vulnerable Sectors

However, certain sectors are likely to face pressure. The ceramics sector, accounting for around 1 per cent of rated debt, is expected to see an adverse impact. Additionally, six sectors--airlines, polyester textiles, specialty chemicals, flexible packaging, diamond polishers and auto components--representing about 6 per cent of rated debt, are likely to experience a moderately negative impact.

Neutral and Resilient Sectors

The broader sectoral assessment indicates that around 22 sectors, accounting for 57 per cent of rated debt, are expected to remain neutral or stable. As highlighted in the assessment, sectors such as fertilisers and diversified engineering procurement and construction (EPC) show resilience, while sectors like airlines and synthetic textiles face moderate pressure. Ceramics stands out among sectors facing a higher negative impact.

Crisil also noted that oil upstream companies, though not depicted in the chart, are expected to benefit from higher realisations.

Infrastructure-linked sectors, including construction and engineering, roads, renewables and capital goods, along with healthcare, were at the forefront of rating upgrades during the period.

FY27 Credit Quality Outlook

Crisil Ratings maintained a stable credit quality outlook for fiscal 2027. This outlook is supported by healthy corporate balance sheets, continued government spending on infrastructure, and steady domestic demand drivers.

Potential Downside Risks

However, Crisil flagged several downside risks. A prolonged conflict beyond 4 to 5 months, sustained higher crude oil prices and supply chain disruptions, including gas, could increase inflationary pressures and lead to demand moderation. Such conditions could also impact discretionary demand, tighten monetary policy and potentially affect government infrastructure spending.

Macroeconomic and Financial Sector Perspective

From a macroeconomic perspective, India's growth is expected to be supported by steady private consumption, aided by tax cuts, GST rationalisation and direct cash transfers to low-income segments. However, risks remain tilted to the downside due to geopolitical uncertainties linked to the West Asia conflict.

In the financial sector, banks are expected to maintain stable credit profiles. Credit growth is likely to remain steady in fiscal 2027, supported by strong growth in MSME and retail segments, as well as increased working capital requirements. However, sustained improvement in deposit growth remains a key factor to monitor. (ANI)