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Informist, Monday, May 25, 2026

 

NEW DELHI – Prolonged supply-chain disruptions caused by the war in West Asia may erode 200 basis points off India Inc's operating profitability in 2026-27 (Apr-Mar), according to a stress test of 34 sectors by Crisil Ratings Ltd. In the pre-war scenario, the operating profit margin expectation for FY27 hovered around 12%.

 

Of the 34 sectors, 22 could see their operating profitability being culled more than 10% due to higher inventory costs and inability to fully pass on the burden to consumers immediately, as per the report.

 

However, Indian companies are expected to stay financially resilient on the back of strong balance sheets, steady domestic demand, and government-led capital expenditure. "Balance-sheet strength should sustain this fiscal, even as working capital needs inch up," the report said, adding that overall outlook for India Inc's credit quality remains stable but cautious.

 

"...we maintain a cautious stance because of the uncertain trajectory of the West Asia conflict. If the strife and the stabilisation period are prolonged further, supply hiccups would exacerbate inflation and amplify demand disruption," Crisil Ratings Senior Director Somasekhar Vemuri said. According to him, the key areas of focus include the magnitude of the conflict and the extent and duration of the increase in fuel prices.

 

As per the report, the ceramic sector will be the hardest hit due to supply-side disruptions triggered by gas shortages in certain areas, which could reduce revenue by a third and profitability by half. Among other sectors, profitability of airlines could fall by half, marred by airspace closures, higher fuel cost, and the depreciation of the rupee.

 

Crude-linked sectors, including polyester textiles, specialty chemicals, and flexible packaging manufacturers, would be able to only partially pass on higher costs, that too, with a lag, the report said. Meanwhile, auto component makers will have limited flexibility to pass on higher production costs in the aftermarket and could see a lagged pass-through of higher input and freight costs. 

 

For diamond polishers, sourcing through alternative hubs will increase procurement costs and Basmati rice exporters would see lower offtake from key markets, according to the report.

 

"For companies, managing costs and profitability will be a bigger challenge than achieving topline growth....we foresee the credit quality of only eight sectors, accounting for 10% of our rated corporate debt, being materially impacted," Crisil Ratings Managing Director Subodh Rai was quoted as saying in the report.

 

The exercise assumed supply-chain disruptions could last for nine months in the ongoing financial year, compared with six months in the base case, with crude oil prices averaging $110 per barrel versus a base case assumption of $95.

 

On the depreciation of the rupee, the analysis showed that most companies either have a natural hedge through trade or have forward
cover for their forex exposure. Further, the share of foreign-currency borrowings in India Inc's corporate debt is low and largely hedged. Among export-linked sectors, pharmaceuticals, textiles, readymade garments, shrimp processors and electronics manufacturers may benefit from the rupee's depreciation, as per the report.  End

 

US$1 = INR 95.23

 

Reported by Shakshi Jain

Edited by Vandana Hingorani

 

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