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Informist, Wednesday, Apr. 1, 2026

 

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--ICRA: Uncertainty on exports to US remains high despite trade deal 
--ICRA: India's vulnerability to West Asia crisis among highest in Asia 
--ICRA: Fertilisers, gems and jewellery, airlines most exposed to W Asia war 
--ICRA: Oil cos, ceramic pdts makers, MSMEs among most exposed to W Asia war 
--ICRA: See India FY27 real GDP growth 6.5% vs 7.5% FY26 
--ICRA: See India FY27 GDP growth at 5.8% if crude avg $105/bbl 
--ICRA: See India FY27 GDP growth at 5.0% if crude avg $125/bbl 
--ICRA: Extended pause in repo rate by MPC most likely scenario 
--ICRA: See FY27 CPI inflation at 4.3% vs 2.1% FY26 in base case 
--ICRA: See FY27 WPI inflation at 3.5% vs 0.7% FY26 in base case 
--ICRA: See revenue hit of INR 1.0 tln-INR 1.2 tln from fuel excise duty cut 
--ICRA: Fertiliser subsidy may top FY27 Budget estimate by INR 400 bln 
--ICRA: CAD may widen to 1.7% of GDP FY27 from 1.0% estimate for FY26 
--ICRA: See rupee depreciation in near term despite high RBI FX reserves 
--ICRA: Have positive outlook on defence, capital goods, hospital sectors 
--ICRA: Have negative outlook on cut and polished diamonds, NFBC sectors 
--ICRA: Airline sector may not be able to pass on rise in costs to consumers 
--ICRA: Credit growth for BSFI likely to taper down in next two qtrs 
--ICRA:Stable outlook on commercial bks, retail, housing NBFCs, small fin bks 
--ICRA:Stable outlook on life insurance, general insurance, security brokers 
--ICRA: Policy tightening from govt, RBI add to risk for security brokers 
--ICRA: India crude oil reserves not adequate to face shock of this scale 
--ICRA: Real estate, trade slowdown to dent banking sector growth 
--ICRA: See banks profitability hit due to mark-to-mkt losses on FX, bonds 
--ICRA: See FY27 bank sector loan growth at 11-12% 
--ICRA: Don't see large increase in delinquencies for lenders in Q4 FY26 
--ICRA: See less than 5.0% GDP growth FY27 if crude availability hampered 
--ICRA:See oil prices higher for some time after war ends than pre-war level 
--ICRA: Don't see slowdown in MF SIP translating to higher bk deposits yet

 

MUMBAI/NEW DELHI – India's real GDP growth could fall to around 5.0% in the financial year 2026-27 (Apr-Mar) in an adverse scenario where the landed price of crude oil in India averages $125 a barrel. The growth rate could be even lower if there is lack of availability of crude oil and liquefied petroleum gas in the international market due to the ongoing conflict in West Asia, ICRA Ratings Ltd.'s Chief Economist Aditi Nayar said Wednesday in a webinar on the rating agency's outlook on FY27.

 

In a base case scenario where crude oil averages $85 a barrel in the current financial year, GDP growth is seen at 6.5% compared to 7.5% in FY26, ICRA said. In a middle of the road scenario, the agency sees GDP growth slowing to around 5.8% with crude at $105 a barrel. Crude oil prices are unlikely to fall to the pre-war level of under $70 a barrel for a few months, even if the war ends immediately, due to the destruction of both oil supply and production facilities, the analysts said.

 

While India has taken steps towards self-reliance, its crude oil reserves are not adequate for a shock of this scale, the domestic affiliate of Moody's Ratings said. The Strait of Hormuz, a crucial waterway that in peace time transported around half of India's crude and LPG needs daily, has been effectively shut after the US and Israel attacked Iran on Feb. 28. India's crude oil basket price has averaged $113.49 a barrel in March, up from $69.01 a barrel in February, government data showed.

 

ICRA Ratings expects India's nominal GDP growth to rise to around 10.5% in FY27 from 8.6% in FY26, driven by a pick-up in wholesale and retail inflation. The rating agency sees WPI inflation at 3.5% in FY27 from 0.7% in FY26 and CPI inflation at 4.3% in FY27 from 2.1% in FY26 in the base case, with no pass-through of fuel prices to retail customers. However, CPI inflation could rise by 40–60 basis points if there is a full pass-through of higher fuel costs, Nayar said. Crude at $105 a barrel through the financial year could drive CPI inflation to 4.6% and at $125 a barrel, it could rise to 5.0%.

 

Food inflation may also add to rising prices as the El Nino phenomenon is likely in the later part of the financial year, ICRA Ratings said. The El Nino weather condition in the Pacific Ocean is linked to drier and hotter weather in India. Despite the expected uptick, CPI inflation is likely to remain near the Reserve Bank of India's aim of 4% in the base case and in the middle of the central bank's 2-6% tolerance band, Nayar said. With risks to both growth and inflation from the West Asia war, the Monetary Policy Committee of the RBI is most likely to hold the repo rate steady at 5.25% through FY27, the economist said.

 

The rating agency expects India's net oil import bill to increase sharply to $161 billion in FY27 from $124 billion in FY26, which could widen the current account deficit to 1.7% of GDP from 1.0% estimated in FY26. ICRA Ratings projects that every $10 per barrel increase in crude oil prices could widen India's current account deficit by 30–40 bps. At $105 per barrel, the deficit is seen rising to around 2.4% of GDP, with additional risk from muted capital inflows and pressure on remittances. In the worst case of crude averaging $125 a barrel, the deficit may rise to 3.1% of GDP, the highest since the Taper Tantrum of 2013.

 

"How do we finance it? That will remain an enduring question," an ICRA Ratings official said. "And the more that FDI comes in, that gives a lot of relief."

 

The government eased foreign direct investment norms for countries sharing land borders with India in March, amending the provisions introduced under Press Note 3 of 2020. While the potential boost from investments from China may be a positive, historically the number has not been very large, the ratings agency said. While gross FDI rose nearly 15% on year to $79.32 billion in Apr-Jan, net FDI was a paltry $1.66 billion, down 23.5% on year, latest RBI data showed. 

 

ICRA Ratings expects the widening current account deficit to lead to near-term weakness in the rupee despite the RBI's "high" foreign exchange reserves. The domestic currency fell 4.2% in March as the West Asia war escalated and had its worst fiscal year in over a decade in FY26, ending at a record closing low of 94.83 a dollar. India's foreign exchange reserves fell to an over two-month low of $698.35 billion as of Mar. 20, marking its third straight week of decline. These reserves are further hollowed by the central bank's forward book, which market participants estimate to be short by $90 billion to $100 billion.

 

The RBI could arrest the slide through several measures, depending on the duration of the conflict, according to the ratings agency said. The RBI could consider introducing a special window to directly sell dollars to oil companies to ease pressure on the rupee in order to ease the demand for dollars in the market, Nayar said. The central bank's move to cap banks' onshore net open positions at $100 million by Apr. 10 had a mixed impact on Monday – after strengthening to 93.59 a dollar earlier in the day, the rupee fell to a record low of 95.22 against the greenback during the day. Nayar declined to give an estimate for the rupee level by the end of FY27.

 

The fiscal impact of the West Asia war is also mounting on the central government. ICRA Ratings expects a net hit of INR 1.0 trillion to INR 1.2 trillion to revenues on account of petrol and diesel excise duty cuts enacted last week, along with an additional INR 400 billion outlay on fertiliser subsidies from the Budgeted amount in FY27. However, the government's economic stabilisation fund could provide a buffer of sorts for the adverse impact, the ratings agency said. In the FY26 Budget, the Centre allocated nearly INR 590 billion for the fund, planned to be as large as INR 1 trillion.

 

"And another couple of channels of impact would be the corporate tax collections, as well as the dividend receipts from the downstream oil companies, as well as other entities," Nayar said. "So, there are a lot of revenue and expenditure risks." With these risks at the fore, government bond yields are expected to remain high, according to the ratings agency. On Monday, the yield on the 10-year benchmark gilt ended at 7.03%, its highest closing level in nearly 22 months.

 

SECTORAL OUTLOOK

India's vulnerability to the West Asia crisis is among the highest in its peer group due to its dependence on supply of fuel through the Strait of Hormuz, ICRA said. Industries like gems and jewellery, fertilisers, airlines, oil companies, ceramic product makers, basmati rice exporters and micro-, small- and medium-enterprises will be the worst affected by the conflict. Uncertainty about India's exports to the US also continues as the world's largest economy has sought to impose tariffs through other means after the US Supreme Court struck down tariffs imposed under the International Emergency Economic Powers Act. India had negotiated an interim trade pact with the US over the past year where the tariff on India's exports to the US fell to 18% in February from the 50% imposed in August. 

 

ICRA Ratings has a positive outlook on only three sectors heading into FY27 – defence, capital goods, and hospitals. The defence sector will be helped both by the government's manufacturing push and increasing indigenisation of procurement, even as cash flows are not robust. Hospitals cater to both an underserved market as well as one which is quickly moving to premium services and consolidation at a time when spending on healthcare is increasing. For capital goods, power, cement, real estate and data centres have drawn consistent spending by both the private sector and the government. A cut in the government's outlay in the face of other fiscal challenges may hurt the sector, the ratings agency said.

 

In addition to risks to public capital expenditure, the nascent recovery in private capital expenditure may also slow due to the West Asia war, ICRA Ratings said. Capital expenditure by private-sector Indian companies rose marginally in FY26 and is expected to remain steady in the current fiscal year, as per the capital expenditure survey released by the Ministry of Statistics and Programme Implementation last week.

 

The ratings agency turned its outlook negative on three sectors in March as the war progressed – airlines, fertilisers and oil marketing and refining companies. Airlines may not be able to pass on the increase in their fuel costs to consumers, impinging on margins. The fertiliser sector – heavily dependent on imported LPG – is likely to face a shortage of energy supply, reducing throughput while facing margin pressure, if the war continues. There is no immediate shortage of fertiliser in the country and an associated impact on crop output, but the sector may do poorly, ICRA Ratings said. For downstream oil companies, while domestic demand is likely to remain steady, input costs are again likely to be a spoilsport on profitability.

 

These are among the nine total sectors which have negative outlooks, including power distribution companies, the cut and polished diamond industry and basic chemicals and petrochemicals. Chemical companies may suffer from global oversupply, while the jewellery sub-sector could be hurt by slower economic growth in key markets including China and the US. Power companies have government support acting as a positive, but their own weak operating efficiency and lack of tariff revisions will continue to keep growth in check in the face of an already large debt burden, ICRA Ratings said.

 

BFSI

The banking sector's loan growth is likely to be 11-12% in FY27, ICRA Ratings said, slowing from the 13.8% increase on year as of Mar. 15, according to latest data. The second half of the financial year saw a big pickup in bank loan growth as lenders had pricing power for wholesale loans at a time when transmission to lending rates were quicker than the movement in bond yields, which hardened in the Oct-Mar period. This pricing power for wholesale loans is likely to remain in FY27, Chief Rating Officer K. Ravichandran said.

 

However, the first two quarters may see sluggish offtake especially with the expected slowdown in trade credit and lending to the real estate sector and for mortgages. Loans to non-banking financial companies are also likely to slow, and from them to MSMEs, which have smaller buffers to deal with global headwinds, ICRA Ratings said. Banks are likely to face a hit on their profitability from the RBI's measures to curb speculation in the rupee as well as the rise in bond yields. The 10-year benchmark gilt yield rose 45 basis points in FY26.

 

Still, the ratings agency has a stable outlook on most entities in the sector including commercial banks, small finance banks, combined, housing, infrastructure and retail NBFCs, life insurers and general insurers, and security brokers. The only sore thumb was the microfinance NBFCs, where asset quality concerns have re-emerged after a period of stabilisation, the ratings agency said. Weak earnings performance and high credit costs make for challenging rating conditions, even though there was no sign of increased delinquency in Jan-Mar across lenders.

 

"Things were improving but suddenly the Bihar circular changed the sentiment in the sector," ICRA Ratings said, referring to a law passed in Bihar tightening oversight of the recovery practices of microlenders. "Now with light of the current war related impact, second order and third order impact and also the elections underway in different states, the repayment behavior is something we are closely watching."

 

The credit-to-deposit ratio concerns of banks have cooled, according to ICRA Ratings, despite the incremental lending outpacing deposits over the past quarter. The analysts did not see any pickup in fixed deposits attributable to investors slowing down their systematic investment plans in mutual funds as equity indices have tumbled following the outbreak of the war in Iran.

 

In other commentary, the ratings agency said securities brokers face headwinds due to the risk of policy tightening by both the regulator and the government. The RBI had curbed lending to capital market intermediaries from Apr. 1 but on Tuesday delayed the implementation of the directions to Jul. 1 and relaxed some provisions pertaining to brokers. The government has raised the securities transaction tax twice in the last three years.  End

 

US$1 = INR 94.83

 

Reported by Aaryan Khanna and Divya Moolayattil

Edited by Ashish Shirke

 

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