New Delhi, Apr 1 (KNN) Credit profile of Indian corporates remained resilient in fiscal year 2025-26 despite tariff-related disruptions and external headwinds with ratings upgrades by ICRA far outpacing downgrades.
In a report released on Wednesday, ICRA said that it upgraded the ratings of 388 entities in FY26, while those of 124 entities were downgraded. This marked a strong credit ratio of 3.1x during the fiscal year ending March 2026.
“This represents a significant improvement over the credit ratio of 2.0x in 2024-25 and 2.1x in 2023-24, underscoring benign credit quality trends across most sectors,” ICRA said.
The rating agency said that policy support from the government, including measures to boost consumption and infrastructure spending, helped sustain credit quality amid external pressures such as tariffs and geopolitical tensions.
Emerging Risks
The agency noted that as FY26 drew to a close external pressure seemed to be easing and outlook for the Indian economy in the new fiscal looked more favourable but war in West Asia now threatens to have far-reaching domestic implications.
K. Ravichandran, Executive Vice President & Chief Rating Officer, ICRA, said, “The escalation of hostilities in West Asia since late February 2026 has reintroduced risks, particularly for India’s energy and food security. A prolonged conflict or disruption of the Strait of Hormuz could constrain the supply of oil, gas and fertilisers, triggering global supply shocks.”
“While higher subsidies could cushion commodity price pressure, they may strain Government finances. Moreover, corporates could face a moderation in demand and pressure on margins amid rising inflation,” he added.
Sectoral Performance and Rating Drivers
Rating upgrades in FY26 were largely driven by stronger business performance, improved parent support, reduced project risks in infrastructure sectors like power and roads, and healthier financial profiles through deleveraging or equity infusion.
Sectors such as power, real estate, hospitality, auto components and roads accounted for a significant share of upgrades. The hospitality sector, in particular, saw sustained improvement in occupancy and pricing. In contrast, stress in microfinance and certain chemical segments led to downgrades.
Low Defaults, Stable Credit Metrics
Credit quality remained robust, with a low default rate of 0.4 per cent in FY26. Of the nine defaults recorded, only one involved an investment-grade entity. The large rating change rate remained contained at 1.2 per cent, below the five-year average, indicating stability in credit movements.
Trade Developments and External Exposure
Global trade policies remained a key factor in the fiscal just gone by. While earlier high US tariffs had affected export sectors like textiles and diamonds, recent tariff reductions have eased some pressure, though uncertainty persists.
The India–EU trade agreement, concluded early this year after prolonged negotiations, is expected to enhance competitiveness across sectors such as textiles, pharmaceuticals and auto components once implemented, although the withdrawal of certain EU trade benefits may create short-term challenges.
Vulnerability to External Shocks
India’s reliance on imports—especially oil, gas, gold and fertilisers—continues to pose risks. A significant portion of these imports originates from West Asia, increasing exposure to geopolitical disruptions. The region also accounts for a notable share of exports and remittances.
Ravichandran emphasised that sectors such as fertilisers, airlines, oil and gas, gems and jewellery, and micro, small and medium enterprises (MSMEs) are likely to be more vulnerable to rising input costs, supply disruptions and demand pressures. MSMEs, in particular, face higher risks due to limited financial buffers.
ICRA highlighted that domestic consumption and infrastructure investment are expected to support growth, but prolonged geopolitical tensions could impact inflation, fiscal metrics, and external balances.
(KNN Bureau)
