The first half of Fiscal Year 2026 painted a compelling picture for Indian corporates. Despite a turbulent global landscape marked by geopolitical conflicts, rising retail credit delinquencies, and new US tariffs, India Inc. showcased remarkable resilience. This strength largely stemmed from robust domestic demand and strategically deleveraged balance sheets, demonstrating a strong economic moat built since the pandemic. While overall credit quality held steady, a clear divergence emerged: sectors catering to domestic needs surged forward, while export-oriented industries felt the significant pinch of international trade policies.
The driving force behind numerous credit upgrades in H1 FY26 was a confluence of favorable domestic factors. Near-decade low inflation, a significant 100 basis points reduction in interest rates, above-normal monsoons, and government consumption-boosting policies like lower income tax and reduced GST rates collectively bolstered corporate balance sheets. Consequently, infrastructure and related sectors – including construction, engineering, roads, renewables, capital goods, secondary steel, commercial realty, and hospitality – saw the highest number of upgrades, benefiting from predictable cash flows and diversified order books. This robust internal demand has allowed many businesses to thrive, even as global uncertainties persist.
However, the picture wasn't entirely rosy for all. Export-linked sectors bore the brunt of new US tariffs, leading to a higher incidence of credit downgrades. Industries such as diamond polishing, shrimp exporting, and home textile manufacturing, which rely heavily on the American market, faced significant pressure on profitability and competitiveness. Looking ahead, while domestic consumption and infrastructure spending are expected to continue driving growth in H2 FY26, the external environment remains complex. Exporters, particularly those with high reliance on the US market, are likely to grapple with margin pressures and potential disruptions to trade flows, underscoring the ongoing need for strategic adaptation and diversification in an evolving global economy.
