The first half of Fiscal Year 2026 paints a picture of resilience for Indian corporates, even amidst a turbulent global economic landscape. Despite geopolitical conflicts, pockets of domestic demand slowdown, and significant international trade hurdles, India Inc. has largely maintained its credit quality. Reviews from leading rating agencies like Crisil, Icra, India Ratings, and CareEdge highlight a nuanced scenario: while robust domestic factors have propelled certain sectors to new heights, export-oriented industries are feeling the pinch of escalating global trade tensions, particularly from US tariffs. This divergence underscores a dynamic economy where strategic strengths are countering external pressures, shaping the investment landscape.
A significant driver of this resilience has been a combination of favourable domestic macroeconomic conditions. Near-decade low inflation, a 100-basis-point reduction in interest rates, above-normal monsoons, and consumption-boosting policy measures like lower income tax and reduced GST have collectively bolstered corporate credit profiles. As a result, sectors closely tied to domestic growth have seen the most upgrades. Infrastructure and related industries, including construction and engineering, roads, renewables, capital goods, and secondary steel, emerged as frontrunners. Other beneficiaries include commercial realty, auto & auto components, and consumer services suchibilities such as education, hospitality, healthcare, and consumer durables. Notably, many corporates prudently preserved their balance sheet integrity by relying on internal accruals and equity for business expansions, rather than taking on fresh debt for new capex cycles.
However, the journey wasn't smooth for all. Export-linked sectors bore the brunt of new challenges, particularly the high tariffs imposed by the US on Indian exports. Diamond polishers, shrimp exporters, and home textile manufacturers experienced significant downgrades, reflecting their heavy reliance on the US market. Other sectors such as basic chemicals, small-sized auto and auto ancillaries, trading, and ceramic manufacturing also faced headwinds. The financial services sector presented a mixed bag; while most banks saw stable credit quality, some Non-Banking Financial Companies (NBFCs), Small Finance Banks, and Microfinance Institutions (MFIs) reported increased stress. Looking ahead, the infrastructure and construction sectors are poised for continued growth, driven by diversified order books and predictable cash flows. Conversely, the persistence of US tariffs is expected to continue weighing on the credit quality of affected export sectors, underscoring the delicate balance between domestic momentum and global economic headwinds.
