Strong domestic growth supports credit quality of India Inc amid tariff pressure, global uncertainties
FinTech BizNews Service
Mumbai, September 30, 2025: The Crisil Ratings credit ratio, or the proportion of rating upgrades to downgrades, stood at 2.17 times in the first half of this fiscal, moderating from 2.75 times in the first half of last fiscal.
Overall, there were 499 upgrades and 230 downgrades during the period (see chart in annexure).
The reaffirmation rate stood at 80% for the first half of this fiscal, underscoring the resilience of corporates.
The upgrade rate of 14% outpaced the average of 11% over the past decade. While upgrades were broad-based, the infrastructure and related sectors, such as construction and engineering, roads, renewables, capital goods and secondary steel were at the forefront.
The downgrade rate was at 6.4%, in line with the 10-year average. Downgrades were more in export-linked sectors bearing the brunt of US tariffs. These include diamond polishers, shrimp exporters and home textile manufacturers.
Says Subodh Rai, Managing Director, Crisil Ratings, “Sustained pace of infrastructure development on the back of government-led capital expenditure (capex), timely project completions and healthy revenue visibility have bolstered the credit quality of infrastructure and linked sectors. Notably, around 45% of the upgrades were in these sectors. Conversely, softening global demand and consequent profitability pressures amid tariff concerns impacted a few export-oriented sectors. About 30% of the downgrades were from these sectors.”
A host of tailwinds—income tax relief, rationalisation of the goods and service tax rates, lower inflation and reduced interest costs—are set to bolster domestic consumption. Steadfast government capex and favourable domestic demand support the credit quality outlook for infrastructure- and consumption-linked sectors:
• Construction sector will benefit from diversified order books across the roads, water, irrigation and power segments
• Strong counterparties and predictable cash flows support the outlook for the infrastructure segments such as renewable energy, road assets, commercial real estate and data centres
• Hospitality will benefit from rising momentum in leisure and business travel, with demand outpacing supply
• FMCG will benefit from sustained demand, led by easing inflation, tax relief and strong profitability aided by increasing premiumisation
However, tariffs imposed by the US will weigh on the credit quality of some export-linked sectors given that the country accounts for 20% of India’s merchandise exports—and significantly more for some of the impacted sectors. To be sure, frontloading of revenues by exporters in the first half will mean the full impact of the tariffs may not be visible this fiscal.
The sector-wise impact we see this fiscal:
• Diamond polishers: Operating profit will be curtailed as tariff challenges exacerbate demand pressures amid intensifying competition from lab-grown diamonds
• Shrimp exporters: Revenue will decline sharply amid higher competitive intensity, even as orders got frontloaded in the first half of this fiscal
• Home textile makers: Revenue is poised to decline somewhat because any supply chain rejig by customers in the US will take time
• Readymade garment makers: Revenue would be supported by the domestic market; dependence on the US market is not significant
• Chemicals and capital goods makers: While revenue growth will likely see a moderate impact, healthy operating margin can largely offset this
• Pharmaceuticals makers: Impact likely to be low as Indian manufactures are present largely in generics, which are currently outside the purview of the US tariffs
The second-order impact of slower global growth and dumping by competing nations in the domestic and other export markets need monitoring.
Other restrictive measures such as a substantial hike in H-1B visa fee may not impact profitability significantly, particularly for the information technology sector as companies recalibrate their resource strategies.
The credit quality outlook of banks and non-banks for this fiscal remains steady. Credit growth is likely to pick up in the second half, aided by lower interest rates, reduction in policy rates and improved consumption driven by rationalisation of the GST rates and income tax cuts. Bank credit is seen growing a touch higher than last fiscal at 11-12%, while assets under management (AUM) of non-banks is expected to grow at a healthy pace like last fiscal’s 18%.
Asset quality of banks and non-banks is expected to be steady, even as pockets of vulnerability remain.
In the MSME1 sector, non-performing assets may inch up in select export-oriented segments, while the unsecured loans and the microfinance segment bear watching.
Overall, corporate India’s credit quality outlook continues to be resilient.
Says Somasekhar Vemuri, Senior Director, Crisil Ratings, "Favourable domestic consumption and steady government-led infrastructure capex will bolster corporate India’s cash flows. We expect revenue growth to sustain at ~8%2 this fiscal, while Ebitda3 margin is seen steady at ~12%2. Additionally, balance sheet leverage near decadal lows (gearing at ~0.5 time2) affords manoeuvrability if global headwinds intensify. While export-oriented sectors remain vulnerable to the global macroeconomic headwinds, positive outcomes from trade negotiations, including bilateral agreements with large economies such as the US and the European Union, and further domestic policy support could offset the impact.”
