New Delhi, Apr 14 (KNN) India’s strong macroeconomic fundamentals are expected to cushion the impact of a sustained spike in global oil prices, though economic growth could slow by up to 80 basis points (bps) if crude averages USD 130 per barrel in 2026, according to S&P Global Ratings.
Under this stress scenario, the agency projects a decline of 15–25 per cent in corporate earnings (EBITDA) in FY27, alongside a rise in leverage levels by 0.5x to 1x, PTI reported.
Corporate and Banking Sector Impact
The report noted that higher energy prices and supply disruptions linked to tensions in West Asia could weigh on economic activity across households, corporates and banks.
Asset quality in the banking sector may weaken, with non-performing assets (NPAs) potentially rising to around 3.5 per cent. Credit costs could increase modestly, while profitability may come under pressure in FY27.
However, improved corporate balance sheets and well-capitalised banks are expected to limit systemic risks.
Oil Price Assumptions and External Pressures
S&P’s stress case assumes Brent crude prices at USD 130 per barrel in 2026 and USD 100 in 2027, compared with its base case of USD 85 and USD 70, respectively.
Higher crude prices could widen India’s current account deficit, with estimates suggesting that every USD 10 per barrel increase may expand the deficit by about 0.4 percentage points of GDP.
The rupee may also face depreciation pressures due to a rising import bill and global risk aversion.
Transmission Channels of the Shock
The agency warned that an energy shock would transmit through multiple channels, including higher input costs, squeezed corporate margins, rising consumer prices and potential fiscal strain if government subsidies are increased.
Supply disruptions affecting fuel and petrochemicals could further weigh on growth.
Buffers to Absorb the Shock
Despite these risks, India entered 2026 with strong growth momentum, resilient domestic demand and relatively low inflation, providing a cushion against near-term shocks.
Sectors such as chemicals, refining and aviation are expected to be the most exposed, while infrastructure and utilities are likely to remain relatively resilient.
S&P also highlighted that corporate deleveraging in recent years and stronger banking sector health would help contain broader financial stress.
Limited Impact on Sovereign Ratings
The agency does not expect any immediate impact on India’s sovereign credit rating, though fiscal consolidation efforts could face temporary setbacks due to higher spending pressures.
India’s external position, including foreign exchange buffers, is seen as a key strength in managing the impact of a higher import bill.
Outlook Dependent on Geopolitical Developments
S&P’s base case assumes that tensions in West Asia will ease and disruptions—particularly around the Strait of Hormuz—will gradually subside, though some impact may persist for months.
While India is seen as capable of weathering short-term shocks, the agency cautioned that a prolonged period of elevated oil prices could pose broader risks to growth, fiscal stability and external balances.
(KNN Bureau)
