West Asia conflict may dent India Inc profitability, but credit quality remains resilient: Crisil

The prolonged conflict in West Asia is forcing Indian companies to realign supply chains, manage pricing pressures, absorb higher fuel and freight costs, and deal with a weakening rupee, according to a report by Crisil. 

However, despite mounting geopolitical uncertainties, India Inc’s credit quality is expected to remain resilient, supported by strong corporate balance sheets, stable domestic demand, and continued government-led capital expenditure, the ratings agency said. 

Crisil conducted a stress test across 34 sectors, accounting for nearly 65% of its rated corporate debt, assuming supply-chain disruptions persist for nine months this fiscal compared with six months in its base-case scenario. The agency also assumed crude oil prices would average $110 per barrel this fiscal, against its earlier estimate of $95 per barrel. 

Based on the assessment, Crisil said prolonged supply-chain disruptions could shave off around 200 basis points from corporate operating profitability this fiscal from the pre-conflict expectation of nearly 12%, with some sectors witnessing sharper stress. “For companies, managing costs and profitability will be a bigger challenge than achieving topline growth,” said Subodh Rai.  

“Of the 34 sectors stress-tested, 22 would see operating profitability decline by more than 10% due to higher inventory costs and the inability to immediately pass on the burden to consumers.” He added that balance-sheet strength, controlled gearing levels, and sustained domestic demand would cushion credit profiles, limiting material credit-quality deterioration to only eight sectors accounting for around 10% of rated corporate debt. 

According to Crisil, corporate India’s median gearing has halved over the past decade to around 0.5 times as of March 2026 while interest coverage has doubled to over five times. This has created sufficient headroom for companies to absorb profitability pressures arising from the West Asia conflict. 

The agency also noted that policy support measures, including the recently announced Emergency Credit Line Guarantee Scheme (ECLGS) 5.0, would help micro, small and medium enterprises (MSMEs), which remain more vulnerable due to weaker balance sheets. 

Ceramic sector worst hit; airlines among most vulnerable 

Among sectors directly exposed to West Asia or linked closely to crude oil-based products, the ceramic sector is expected to face the sharpest impact. Crisil said supply-side disruptions caused by gas shortages could reduce sectoral revenue by nearly one-third and profitability by half. 

Seven sectors are expected to witness a moderately negative impact on credit quality, mainly due to pressure on operating margins. The airline sector could see profitability fall by nearly 50% owing to airspace closures, elevated aviation fuel costs, and rupee depreciation. 

Other crude-linked sectors such as polyester textiles, specialty chemicals, and flexible packaging manufacturers may only be able to partially pass on higher costs, and that too with a lag. Auto component manufacturers may also face delayed pass-through of increased freight and raw material costs. 

Diamond polishers are expected to incur higher sourcing costs through alternative procurement hubs, while basmati rice exporters could face lower demand from key export markets. 

At the same time, sectors such as pharmaceuticals, textiles, readymade garments, shrimp processing, and electronics manufacturing could benefit from rupee depreciation because of their export orientation. “As long as the conflict trajectory remains uncertain, we will continue to maintain a cautious stance,” said Somasekhar Vemuri. “If the conflict and stabilisation period stretch further, supply disruptions could intensify inflationary pressures and weaken demand, which may eventually affect overall credit quality.”