Prolonged West Asia could shave off corporate profits by 200 bps in FY27, says Crisil Ratings

“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,” said Subodh Rai, managing director, Crisil Ratings.

On the other hand, even a partial pass-through can drive up realisations, resulting in a lower impact on revenue growth for most sectors. 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, Rai said.

Over the past decade, corporate India’s median gearing has halved to ~0.5 time as of March 2026, while interest coverage has doubled to over 5 times. Consequently, robust balance-sheets are providing sufficient headroom for India Inc to navigate the profitability pressures emanating from the West Asia conflict, thereby keeping credit profiles resilient. Balance-sheet strength should sustain this fiscal, even as working capital needs inch up ,Crisil Ratings said .

Credit quality has been supported by policy interventions in times of non-linear events such as the Covid-19 pandemic and the tariff tribulations last year. The recently announced Emergency Credit Line Guarantee Scheme (ECLGS) 5.0 is timely in supporting MSMEs—characterised by limited balance-sheet buffers and consequently higher vulnerability to the West Asia conflict—by alleviating credit quality pressures, it said.

The rating firm said it’s overall outlook for India Inc’s credit quality remains stable but cautious.

“We outline below the sector-specific impact where there is a direct exposure to West Asia or significant linkages to crude oil-based products but limited balance-sheet cushion to absorb the impact,,” it said.

The rating firm said the ceramic sector will be the hardest hit due to supply-side disruptions caused by gas shortages in certain areas, which could reduce revenue by a third and profitability by half.

Seven sectors would see moderately negative impact on their credit quality mainly because of lower operating profitability. For six of these, operating profitability is expected to fall by one-tenth to one-third, while for the seventh—airlines— profitability could reduce by around 50%.

The airline sector will be impacted by airspace closures, higher fuel cost and rupee depreciation, it said. Crude-linked sectors, including polyester textiles, specialty chemicals and flexible packaging manufacturers, would be able to only partially pass on higher costs—that, too, with a lag, it added.

Auto component makers will have limited flexibility to pass on higher production costs in the aftermarket and could see a lagged pass-through of higher input and freight costs

For diamond polishers, sourcing through alternative hubs will increase procurement costs and affect operating profitability. Basmati rice exporters would see lower offtake from key markets, impacting revenue and operating efficiency, it said.