India Inc’s credit upgrade momentum cools in H2 FY26; Crisil warns prolonged conflict could trigger stress

The ratio of credit rating upgrades to downgrades for Indian companies moderated in the second half of fiscal 2026, Crisil Ratings said on Wednesday.

The credit ratio stood at 1.50 times in the six months to March, down from 2.17 times in the first half of the fiscal year.

The moderation came as upgrade momentum cooled and downgrades edged higher amid external uncertainties, including tariff-related risks affecting export-oriented sectors.

The upgrade rate declined to around 10.6% from 14% in the previous half, led by infrastructure-linked sectors such as construction, roads, renewables and capital goods, along with healthcare. The downgrade rate inched up to 7.0% from 6.4%.

Crisil said India Inc is likely to benefit from domestic tailwinds, including goods and services tax rationalisation, the lagged impact of income tax cuts announced last year, and continued government infrastructure spending, along with a reversal of US reciprocal tariffs.

“The West Asia conflict, however, would increase cost pressures and necessitate realignment of supply chains for India Inc,” Crisil Ratings said. “Amid this, India Inc's credit quality outlook for fiscal 2027 is stable but cautious.”

Subodh Rai, managing director at Crisil Ratings, said most sectors will see “limited impact despite higher input prices and gas supply disruptions, supported by strong balance sheets.”

“But a prolonged conflict would pose systemic risks and could have a cascading impact on credit quality,” he added.

The agency analysed 30 sectors accounting for about 65% of rated corporate debt and found 23 would see limited impact, six could face moderate pressure and one sector may be adversely affected due to heavy reliance on gas.

“The ceramics sector is likely to be the hardest hit given its significant reliance on gas. Production halts in certain areas could shave off revenue by one-third and profitability by half,” the release said.

Airlines could face a “triple whammy” of higher fuel costs, currency depreciation and potential travel disruptions, while sectors such as specialty chemicals, textiles and auto components may struggle to pass on higher input costs.

On the other hand, upstream oil companies are expected to benefit from higher crude prices.

It also cautioned that a prolonged conflict could expose vulnerabilities, particularly in sectors dependent on discretionary demand or global trade.

“Corporate India’s resilience is being tested again after the pandemic and tariff shocks,” said Somasekhar Vemuri, senior director at Crisil Ratings. “While the outlook is stable for now, the duration and intensity of the West Asia conflict will be critical.”