New Delhi: India Inc is likely to withstand the prolonged West Asia conflict despite mounting pressure on profitability from supply-chain disruptions, higher fuel and freight costs, and a weaker rupee, according to a ‘stress test’ by Crisil Ratings.
The ratings agency said strong balance sheets, steady domestic demand and continued government-led capital expenditure would help companies absorb the impact of geopolitical uncertainty, even as costs rise across sectors.
Crisil assessed 34 sectors accounting for 65% of its rated corporate debt under a stress scenario that assumes supply-chain disruptions persist for nine months this fiscal and crude oil averages $110 per barrel, against its base-case assumption of $95.
The agency said corporate operating profitability could decline by about 200 basis points this fiscal from the pre-conflict expectation of around 12%, with 22 of the 34 sectors likely to see profitability shrink by more than 10%.
“For companies, managing costs and profitability will be a bigger challenge than achieving topline growth. Of the 34 sectors stress-tested, 22 would see operating profitability being culled more than 10% due to higher inventory costs and inability to fully pass on the burden to consumers immediately. On the other hand, even a partial pass-through can drive up realisations, resulting in a lower impact on revenue growth for most sectors,” says Subodh Rai, Managing Director, Crisil Ratings.
“Further, credit profiles will be cushioned by controlled gearing levels and sustained domestic demand. Consequently, we foresee the credit quality of only eight sectors, accounting for 10% of our rated corporate debt, being materially impacted,” he adds.
Crisil said the ceramic sector would face the sharpest impact because of gas shortages and supply disruptions, with revenue potentially falling by a third and profitability by half.
Seven other sectors are expected to face a moderately negative impact on credit quality. Airlines are likely to be hit by airspace closures, elevated aviation turbine fuel prices and rupee depreciation, with profitability potentially halving. Crude-linked sectors such as polyester textiles, specialty chemicals and flexible packaging are expected to struggle to fully pass on higher input costs.
Auto component makers may face delays in passing on higher production and freight costs, while diamond polishers could see procurement expenses rise as sourcing shifts to alternative hubs. Basmati rice exporters are also expected to face lower demand from key overseas markets.
Crisil said India Inc’s stronger financial position would provide a buffer against prolonged stress. Median corporate gearing has halved over the past decade to around 0.5 times as of March 2026, while interest coverage has doubled to more than five times.
The agency said policy support had also strengthened resilience, citing the newly announced Emergency Credit Line Guarantee Scheme (ECLGS) 5.0 as a timely measure to support MSMEs vulnerable to prolonged disruptions.
The report noted that most companies either have natural hedges against rupee depreciation through trade flows or maintain forward cover for foreign exchange exposure. Sectors such as pharmaceuticals, textiles, readymade garments, shrimp processing and electronics manufacturing could benefit from the weaker rupee through improved export competitiveness.
“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. If the strife and the stabilisation period are prolonged further, supply hiccups would exacerbate inflation and amplify demand disruption,” says Somasekhar Vemuri, Senior Director, Crisil Ratings.
“Therefore, the crucial monitorables are the magnitude of the conflict and the extent and duration of the increase in fuel prices because these can impact our assessment of overall credit quality,” he adds.