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Informist, Thursday, Jun. 25, 2026

MUMBAI – The impact of the West Asia war on the operating margins of India Inc. is expected to be confined to 100 basis points, Crisil Ratings said in a press release. The aggregate operating margin of the 34 sectors exposed to the conflict is seen at 11% in 2026-27 (Apr-Mar) from 12% expected prior to the war. The ratings agency had anticipated a 200-bps pressure on the margins assuming a prolonged conflict and closure of the Strait.

The change in view comes after the Strait of Hormuz was reopened post signing of a memorandum of understanding between the US and Iran to end the war. Following this, crude oil prices eased sharply, regaining their pre-war levels Thursday. However, the number of oil ships transiting through the Strait currently still remains well below the pre-conflict levels. "The availability of crucial inputs such as gas and urea is expected to improve only gradually as structural supply-side disruptions that occurred during the conflict are sorted. At present, ships transiting the Strait number well below the pre-conflict levels," the agency said.

Expenditure on infrastructure by the government and expectations of steady consumption are expected to further support consumer demand. Moreover, price hikes by companies are likely to offset the rising costs of raw materials, in turn, supporting the value growth, Crisil said.

"If the armistice sustains, two-thirds of the 34 sectors will see minimal disruption, with margin recovery in the second half mostly offsetting pressures of the first half," said Subodh Rai, managing director of Crisil Ratings. "But the risk of conflict escalation persists, so we foresee corporate India staying cautious and continuing to focus on supply-chain diversification," he said.

Crisil expects the price of Brent crude oil to average $80-$85 per barrel in the current financial year. It sees a lag in gas supplies with an overall disruption extending for four months for FY27. "The reopening of the Strait is also expected to gradually reduce India's dependence on high-cost spot gas," Crisil said.

The ratings agency sees a minimal impact on revenues and margins of 24 sectors and a recovery in Oct-Mar. The rest 10 sectors' margins are likely to contract significantly compared to pre-war estimates. These sectors will "face a meaningful squeeze with operating margins declining by one-tenth to one-third," it said.

Outlook on the credit quality of four of these 10 sectors is stable or neutral as the agency expects balance sheet strength will cushion the impact of lower profitability. On other hand, the credit quality of the rest six sectors is expected to be moderately negative because of one-tenth or more impact on profitability, higher working capital requirement, and moderate balance-sheet strength, it said.

For aviation companies, the margin contraction in the first half is unlikely to fully reverse given currency pressures, capacity rationalisation and constrained pricing power, which would strain profitability, Crisil said. Higher fuel costs, limited gas availability, and the consequent decline in capacity utilisation are expected to eat into the margins of ceramic companies in the June quarter, according to the agency. It sees only a partial and gradual recovery as supply conditions, pricing, and utilisation are expected to improve over the rest of FY27.

Higher input costs and moderate ability to fully pass on to consumers are likely to weigh on margins of commodity-linked sectors such as flexible packaging, specialty chemicals, polyester textiles. Persistent demand disruptions will weigh on both volume and profitability of diamond polishing companies. "Importantly, no sector is expected to witness high impact on either revenue or profitability at this juncture," Crisil said.

Among 24 sectors expected to see minimal impact, oil marketing companies and fertiliser manufacturers are likely to see a sharp turnround in profitability. Between March and May, net under-recoveries after inventory gains for OMCs are estimated to be INR 400 billion–INR 450 billion, Crisil said. OMCs are likely to report operating profits for this financial year, offsetting earlier losses, even if excise duties were reverted to pre-conflict levels and retail fuel prices remain unchanged, it said.

Similarly, the fertiliser sector, supported by priority gas allocation, is expected to see limited impact on profitability as supply conditions improve and subsidy support remains intact. The government's fertiliser subsidy outlay is now estimated at INR 2.4 trillion-INR 2.6 trillion for FY27, about INR 150 billion lower than earlier projections that had factored in a longer period of elevated gas and crude-linked input costs stemming from supply disruptions, Crisil said.

Two factors temper the otherwise stable credit quality outlook for India Inc. One, the likelihood of El Nino this year is expected to result in below-normal rainfall and could also disrupt its timing and distribution posing a key risk to rural demand. Two, the US-Iran memorandum of understanding is interim and non-binding, which keeps the risk of a fresh conflict high, the agency said.  End

US$1 = INR 94.3950

Reported by Simran Rede

Edited by Akul Nishant Akhoury

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