MUMBAI: The credit quality of the Indian corporate sector remained strong in the first half (H1) of 2026-27 (FY27), with credit ratios improving across sectors. Stronger balance sheets, lower leverage, and healthy liquidity provide adequate buffers for companies.
However, elevated crude prices, inflation, weak weather conditions, global interest rates, and US tariff uncertainty pose risks. Credit conditions are expected to remain broadly stable.
Crisil’s credit ratio improved to 2.18x in H1FY27 from 1.5x in the second half of 2025-26, while CareEdge’s ratio rose sharply to 3.95x from 1.93x. Icra’s ratio was broadly stable at 3.2x versus 3.1x, while India Ratings & Research’s (Ind-Ra’s) ratio moderated slightly to 3x from 3.1x.
Crisil reported 464 upgrades and 213 downgrades during the period, with around 81 per cent of ratings reaffirmed. Nearly 40 per cent of upgrades came from infrastructure and allied sectors, including road, renewable, capital goods, and secondary steel, supported by government-led infrastructure spending.
Downgrades were concentrated in ceramics and polyester textiles, reflecting supply-chain disruptions, softer export demand, and competition from Chinese imports. Crisil said a median debt-to-equity ratio of around 0.5x provides companies with sufficient headroom to absorb cost pressures.
Ranjan Sharma, senior director (large corporate ratings), CareEdge Ratings, said, “Upgrades were driven by resilient domestic demand across consumer-linked sectors such as automotive ancillary and dealership, textile, and gold jewellery retailers, as well as infrastructure-led demand supporting the iron and steel and capital goods sectors, while robust leasing demand benefitted the real estate sector.”
“The strengths, operational adaptability, and robust balance sheets, supported by domestic demand, recovering exports, and targeted policy support, have enabled companies to partially, and in some cases fully, pass on cost increases and manage cash flow pressures,” said Subodh Rai, managing director, Crisil Ratings.
However, going ahead, rating agencies have flagged pockets of stress rather than a broad deterioration in corporate credit quality, with diamond polishers, polyester textiles, and specialty chemicals facing elevated pressure amid weak exports, crude-linked input costs and Chinese competition. Similarly, smaller companies in commodity trading, distribution, agricultural products, and road transport are also facing pressure.
At the same time, some moderation in microfinance collections and asset quality, along with slower growth in vehicle finance, is also expected to weigh on credit quality in the second half of the year due to weather-related concerns.
In the second half, corporate credit profiles face the risk of higher crude prices, which could increase input and logistics costs, while a deficient monsoon could weigh on rural incomes and consumption, analysts said. Higher global and domestic interest rates could further pressure discretionary demand and borrowing costs. Export-oriented companies face further uncertainty from US tariffs and protracted geopolitical disruptions.
Global policymakers are turning more hawkish as inflationary pressures rise. The impact of higher policy rates on consumer demand will be a key monitorable, said Somasekhar Vemuri, senior director, Crisil Ratings. “A prolonged conflict in West Asia could further intensify margin and working capital pressures, while a weak monsoon creates an extra layer of uncertainty, particularly if it affects the winter crop. Even amid these headwinds, strong balance sheets across both the corporate and financial sectors provide a major cushion and underpin our stable credit quality outlook.”
Icra and Ind-Ra expect gross domestic product growth to remain healthy at 7.1 per cent in FY27, although rural-linked and discretionary sectors could see slower growth. They expect any emerging credit stress to remain granular rather than systemic, supported by healthy bank capitalisation and asset quality.
“Slower growth does not imply contraction. Volumes across most rural-linked and price-sensitive sectors should continue to grow, while corporate credit profiles remain comfortable. Icra, therefore, expects any emerging stress to remain granular rather than systemic. The banking system’s healthy asset quality and capitalisation also provide substantial capacity to absorb stress while continuing to support credit growth,” said K Ravichandran, executive vice-president and chief rating officer, Icra.
Source: Business Standard
