Strong domestic demand, policy support and infrastructure spending underpin corporate credit quality; infrastructure-linked sectors account for 40% of upgrades
Mumbai, September 30, 2026: Indian companies have demonstrated resilience amid prolonged geopolitical uncertainty, supply chain disruptions and the ongoing conflict in West Asia. According to Crisil Ratings, India Inc’s credit ratio rose to 2.18 times in the first half of FY27, compared with 1.50 times in the second half of the previous fiscal year.
The credit ratio, which measures the proportion of rating upgrades to downgrades, reflects an improvement in corporate credit quality. During the first half of FY27, Crisil recorded 464 rating upgrades and 213 downgrades. The reaffirmation rate, representing companies whose ratings remained unchanged, stood at around 81%, highlighting the stability of corporate credit profiles.
The upgrade rate of approximately 13% was marginally higher than the decadal average of around 11%, while the downgrade rate of nearly 6% remained in line with the long-term average.
Nearly 40% of the upgrades came from infrastructure and allied sectors, including roads, renewable energy, capital goods and secondary steel. The sustained government push on infrastructure capital expenditure has supported growth and operating performance in these sectors.
Downgrades were largely concentrated in ceramics and polyester textiles. Ceramic companies, particularly those with weaker liquidity positions, faced pressure from supply chain disruptions and softer export demand. In polyester textiles, rising competition from Chinese polyester yarn imports weighed on domestic producers, despite healthy end-user demand.
Strong Balance Sheets Help Companies Absorb External Shocks
The conflict in West Asia and the resulting trade and supply chain disruptions have continued for seven months. Despite these challenges, Indian companies have adapted by diversifying sourcing channels, restructuring logistics networks and selectively passing on higher costs.
Crisil Ratings said that strong corporate balance sheets, reflected in a median debt-to-equity ratio of around 0.5 times, have helped contain the impact of the crisis on overall credit quality.
Strong domestic demand, recovering exports and targeted policy support, including the Emergency Credit Line Guarantee Scheme 5.0, have further supported companies in managing cost pressures and cash flows.
Subodh Rai, Managing Director, Crisil Ratings, said, “These strengths, operational adaptability and robust balance sheets, have been reinforced by strong domestic demand, recovering exports and targeted policy support, such as Emergency Credit Line Guarantee Scheme 5.0. Together, they have enabled companies to partially, and in some cases fully, pass on cost increases and manage cash flow pressures.”
He added that in Crisil’s latest assessment of 34 sectors exposed to the West Asia conflict, only three sectors, accounting for less than 1% of rated corporate debt, carry a negative or moderately negative credit quality outlook this fiscal.
Three of Six Previously Impacted Sectors Return to Stable Outlook
Crisil has undertaken multiple scenario-based assessments of 34 sectors directly exposed to the West Asia conflict, representing around 65% of rated corporate debt. Its latest assessment assumes that disruptions will persist through the third quarter of calendar 2026, Brent crude will average $88–93 per barrel, and the rupee-dollar exchange rate will average ₹94–97 this fiscal.
The assessment considers three key factors: the ability to pass on higher input, fuel and logistics costs; the strength and sustainability of demand; and balance sheet resilience.
Of the six sectors identified as impacted in the June 2026 assessment, three have now moved to a stable credit quality outlook.
In ceramics, the gradual restoration of energy supplies and healthy domestic demand from the real estate sector have supported an improvement in operating performance. Flexible packaging has demonstrated resilience through steady demand, improved input availability and the ability to maintain pricing power. In the airline sector, large market-share players have benefited from strong balance sheets and parental support.
However, three sectors continue to face elevated pressure:
- Diamond polishers — Negative outlook: Weak export demand and competition from lab-grown diamonds continue to weigh on realisations. Further disruptions in West Asia could delay demand recovery, while alternative trade routes and domestic demand offer only partial relief.
- Polyester textiles — Moderately negative outlook: Higher crude-linked input costs and increased import competition following the withdrawal of quality compliance norms could put pressure on margins and volumes.
- Specialty chemicals — Moderately negative outlook: Stable domestic demand has enabled partial cost pass-through, but low-priced supplies from China may constrain pricing flexibility and weigh on margins, particularly in export markets.
Crisil cautioned that a prolonged conflict could expose additional sectors currently assessed as resilient. Sectors dependent on discretionary consumption and those with greater exposure to global markets may face higher risks if inflationary pressures weaken demand.
Weak Monsoon Adds to Rural Demand Risks
Weather-related pressures have emerged as another key monitorable. Cumulative rainfall has been around 12% below normal, with significant regional variations.
The impact on overall rural demand is expected to remain limited this fiscal, supported by diversified rural income streams, policy interventions and resilience built over four consecutive years of favourable monsoons.
However, persistent weather anomalies and their potential impact on the winter crop could weigh on rural incomes over the medium term. Tractor manufacturers are expected to record low single-digit volume growth this fiscal, reflecting a high base and the sector’s close linkage to farm incomes and rural sentiment.
Any significant impact on demand from higher-than-expected inflation, driven by supply chain disruptions and elevated food prices due to a weak monsoon, remains a key monitorable.
Bank Credit Growth Expected at 14.5–15.5%
The financial sector is expected to support the funding requirements of the Indian economy, backed by healthy capital positions and profitability.
Bank credit growth is projected at 14.5–15.5% this fiscal, marginally above the approximately 14.5% recorded in the previous fiscal year. MSME and retail lending are expected to remain the key growth drivers.
Liquidity easing, supported by Foreign Currency Non-Resident (B) deposits, has reduced pressure on domestic deposit growth and is expected to support credit expansion.
Gross non-performing assets are expected to remain below 2% by the end of the fiscal year. Nevertheless, the impact of higher energy and logistics costs on MSMEs exposed to the West Asia conflict, along with El Niño-related risks to rural-linked portfolios, will remain under observation.
Non-banking financial companies (NBFCs) are expected to record 18–19% growth in assets under management this fiscal, driven by continued momentum in gold loans and loans against property, along with a measured recovery in unsecured lending.
Asset quality is expected to remain largely stable across key lending segments. However, unsecured business loans and small-ticket loans against property will remain under watch.
Stable Credit Outlook Despite Global Headwinds
Somasekhar Vemuri, Senior Director, Crisil Ratings, said, “Globally, policymakers are turning more hawkish as inflationary pressures rise. The impact of higher policy rates on consumer demand will be a key monitorable. A prolonged conflict in West Asia could further intensify margin and working capital pressures, while a weak monsoon creates an additional layer of uncertainty, particularly if it affects the winter crop.”
He added that strong balance sheets across both the corporate and financial sectors provide a significant cushion against these challenges and underpin Crisil’s stable credit quality outlook.
Overall, Crisil expects corporate credit profiles to remain stable this fiscal, supported by favourable growth prospects, robust capital positions and steady profitability, even as geopolitical uncertainty, inflationary pressures and weather-related risks continue to warrant close monitoring.
