West Asia conflict: India Inc may have shown resilience so far, but risks are rising
A prolonged war could push up inflation and lower GDP growth, say analysts. Asset quality in sectors affected due to the conflict will have to be closely monitored
- Apr 1, 2026,
- Updated Apr 1, 2026 5:06 PM IST
The credit profile of Indian corporates has so far been resilient. Data released by multiple credit ratings agencies shows that upgrades have continued to outpace downgrades in financial year 2025-26 (FY26). However, risks are rising in the wake of the conflict in West Asia, which has led to a surge in oil prices, disrupted gas supplies and crippled supply chains.
“A prolonged conflict or disruption of the Strait of Hormuz could constrain the supply of oil, gas and fertilisers, triggering global supply shocks. While higher subsidies could cushion commodity price pressure, they may strain Government finances. Moreover, corporates could face a moderation in demand and pressure on margins amid rising inflation,” said K. Ravichandran, executive vice-president and chief rating officer at ICRA.
In recent times, global uncertainties have only increased. Last year, there were trade-related uncertainties, as the US administration imposed higher duties on imports from many countries, including India. As this year began, tariff-related pressures started to ease. India and the European Union completed a long-awaited trade deal. Corporate earnings were also beginning to pick up.
However, the US-Israel combine’s attack on Iran has cast a shadow now on that recovery. India’s external vulnerability remains elevated due to its import dependence, with around 45% of the import basket comprising oil and gas, gold, diamonds and fertilisers, noted ICRA. A significant amount of these imports come from West Asia.
Plus, the region accounts for a third of India’s inward remittances and nearly 15% of exports. So, a prolonged crisis could hurt the economy hard.
“While higher crude prices, shipping costs and rupee depreciation would have a broad-based cost impact, the direct effect of the West Asia conflict would be more pronounced for sectors such as fertilisers, gems and jewellery, airlines, basmati rice, downstream oil and gas, ceramics and MSMEs,” added Ravichandran.
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In FY26, ICRA upgraded the ratings of 388 entities, while 124 were downgraded. At Crisil, there were 383 upgrades, versus 255 downgrades. India Ratings upgraded 361 issuers and downgraded 115.
However, early signs of pressures are visible. Crisil pointed out that while the upgrade rate at 10.6% was almost in line with 10-year average, the downgrade rate at 7% was a tad higher than the 10-year average. There were ratings downgrades, particularly of companies that had export presence, it said.
Over the past few years, corporate balance sheets have strengthened. However, if the conflict goes on for four to five months, revenue growth dip around 2%, and operating margins too could slip by 150 basis points, projected Crisil.
“Our credit quality outlook is stable for now, backed by resilient domestic demand and strong corporate balance sheets. But overall, we remain cautious as the duration and intensity of the West Asia conflict is uncertain. If it prolongs, slower global growth, gas availability challenges, higher-for-longer crude oil prices and consequently impact on consumer sentiment will bear watching,” said Somasekhar Vemuri, senior director at Crisil Ratings.
Credit quality outlook is negative for the ceramics industry, where gas supply shortages have hit production. The outlook also remains moderately negative for certain other sectors like auto components, flexible packaging, synthetic textiles, specialty chemicals and diamond polishers. Airlines are seen facing multiple headwinds—travel restrictions, fuel cost spikes, and rupee depreciation.
A prolonged conflict could lead to a larger dent on India Inc’s expected cashflows due to higher energy costs and supply disruptions.
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“Given India’s high dependence on energy imports, a prolonged conflict situation could have cascading effects—fuelling inflation, widening the current account deficit, exerting pressure on fiscal balances, and weighing on growth,” noted Sachin Gupta, executive director and chief rating officer, CareEdge Ratings.
If crude oil were to average $100 a barrel in FY27, India’s GDP growth could moderate to 6.5%, and inflation may rise 5.1-5.3%, CareEdge estimates.
Its base case is that oil will average around $90 a barrel, in which case GDP should grow around 6.7%, while inflation should be in the 4.5-4.7% range, assuming there is limited pass through of high crude oil price to consumers.
ICRA is expecting India’s GDP to grow 6.5% this financial year, lower than its earlier estimate of 7.1% and 7.5% it is expecting for FY26.
Over the past few years, banks have cleaned up their books and non-performing assets have declined significantly. However, in the backdrop of the conflict, the asset quality of export-oriented, crude and LNG-linked micro, small and medium enterprises will have to be closely monitored.
Crisil expects gross NPAs of banks to be around 2.3-2.5% in FY27, compared with 2.2-2.3% projected for FY26.
The credit profile of Indian corporates has so far been resilient. Data released by multiple credit ratings agencies shows that upgrades have continued to outpace downgrades in financial year 2025-26 (FY26). However, risks are rising in the wake of the conflict in West Asia, which has led to a surge in oil prices, disrupted gas supplies and crippled supply chains.
“A prolonged conflict or disruption of the Strait of Hormuz could constrain the supply of oil, gas and fertilisers, triggering global supply shocks. While higher subsidies could cushion commodity price pressure, they may strain Government finances. Moreover, corporates could face a moderation in demand and pressure on margins amid rising inflation,” said K. Ravichandran, executive vice-president and chief rating officer at ICRA.
In recent times, global uncertainties have only increased. Last year, there were trade-related uncertainties, as the US administration imposed higher duties on imports from many countries, including India. As this year began, tariff-related pressures started to ease. India and the European Union completed a long-awaited trade deal. Corporate earnings were also beginning to pick up.
However, the US-Israel combine’s attack on Iran has cast a shadow now on that recovery. India’s external vulnerability remains elevated due to its import dependence, with around 45% of the import basket comprising oil and gas, gold, diamonds and fertilisers, noted ICRA. A significant amount of these imports come from West Asia.
Plus, the region accounts for a third of India’s inward remittances and nearly 15% of exports. So, a prolonged crisis could hurt the economy hard.
“While higher crude prices, shipping costs and rupee depreciation would have a broad-based cost impact, the direct effect of the West Asia conflict would be more pronounced for sectors such as fertilisers, gems and jewellery, airlines, basmati rice, downstream oil and gas, ceramics and MSMEs,” added Ravichandran.
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In FY26, ICRA upgraded the ratings of 388 entities, while 124 were downgraded. At Crisil, there were 383 upgrades, versus 255 downgrades. India Ratings upgraded 361 issuers and downgraded 115.
However, early signs of pressures are visible. Crisil pointed out that while the upgrade rate at 10.6% was almost in line with 10-year average, the downgrade rate at 7% was a tad higher than the 10-year average. There were ratings downgrades, particularly of companies that had export presence, it said.
Over the past few years, corporate balance sheets have strengthened. However, if the conflict goes on for four to five months, revenue growth dip around 2%, and operating margins too could slip by 150 basis points, projected Crisil.
“Our credit quality outlook is stable for now, backed by resilient domestic demand and strong corporate balance sheets. But overall, we remain cautious as the duration and intensity of the West Asia conflict is uncertain. If it prolongs, slower global growth, gas availability challenges, higher-for-longer crude oil prices and consequently impact on consumer sentiment will bear watching,” said Somasekhar Vemuri, senior director at Crisil Ratings.
Credit quality outlook is negative for the ceramics industry, where gas supply shortages have hit production. The outlook also remains moderately negative for certain other sectors like auto components, flexible packaging, synthetic textiles, specialty chemicals and diamond polishers. Airlines are seen facing multiple headwinds—travel restrictions, fuel cost spikes, and rupee depreciation.
A prolonged conflict could lead to a larger dent on India Inc’s expected cashflows due to higher energy costs and supply disruptions.
MUST READ: Trump considers US exit from NATO: 'It's a paper tiger, even Putin knows it'
“Given India’s high dependence on energy imports, a prolonged conflict situation could have cascading effects—fuelling inflation, widening the current account deficit, exerting pressure on fiscal balances, and weighing on growth,” noted Sachin Gupta, executive director and chief rating officer, CareEdge Ratings.
If crude oil were to average $100 a barrel in FY27, India’s GDP growth could moderate to 6.5%, and inflation may rise 5.1-5.3%, CareEdge estimates.
Its base case is that oil will average around $90 a barrel, in which case GDP should grow around 6.7%, while inflation should be in the 4.5-4.7% range, assuming there is limited pass through of high crude oil price to consumers.
ICRA is expecting India’s GDP to grow 6.5% this financial year, lower than its earlier estimate of 7.1% and 7.5% it is expecting for FY26.
Over the past few years, banks have cleaned up their books and non-performing assets have declined significantly. However, in the backdrop of the conflict, the asset quality of export-oriented, crude and LNG-linked micro, small and medium enterprises will have to be closely monitored.
Crisil expects gross NPAs of banks to be around 2.3-2.5% in FY27, compared with 2.2-2.3% projected for FY26.