Despite several serious challenges, including an abnormal monsoon season, rising commodity prices due to the Middle East conflict, and the negative impact of US tariffs on Indian exports, the corporate sector in India is demonstrating resilience. The ratio of credit rating upgrades to downgrades has reached a ten-year peak of 3.2 times.
According to data from the rating agency ICRA, the strong financial position of companies is attributed to the process of reducing debt burden for businesses, as well as the fact that non-performing bank assets are at a historically low level. ICRA noted that the quality of lending remained high in the first half of fiscal year 27, with the credit ratio increasing to 3.2 times compared to 2.8 times the previous year and 3.1 times in fiscal year 26, significantly exceeding the average over the last 10 years, which stands at 1.5 times.
The annual rate of rating improvement slowed from 17% to 14%, but the number of downgrades fell to a multi-year low of 4%, and the default rate was only 0.04%, with no investment-grade defaults recorded.
Ravichandran, Executive Vice President and Chief Credit Analyst at ICRA, stated that Indian corporations enter the second half of fiscal year 2027 in a strong state, supported by healthy balance sheets and significant liquidity reserves. He pointed to higher crude oil prices, monsoon deficit, inflation, and uncertainty related to US tariffs as potential risks, but believes that strong balance sheets should prevent widespread credit stress.
The energy, real estate, auto components, finance, and capital equipment sectors, which constitute about half of the portfolio assessed by ICRA, contributed approximately 50% of all rating upgrades. These improvements mainly reflected the strengthening of parent company businesses, reduction in project risks, increased scale, improved asset quality, and the debt reduction process.
ICRA forecasts that crude oil prices, a 12% monsoon deficit, and declining reservoir levels will put pressure on consumption and agricultural growth. The agency expects the growth of the agricultural gross domestic product to slow to 1% in fiscal year 27 compared to 3.3% in the previous year, and retail inflation may average 5% versus 2.1% in fiscal year 26.
GDP growth is expected to slow to 7.1% from 7.8% in the first quarter. The slowdown may affect rural-related sectors and discretionary spending, while asset quality in microfinance, growth in auto finance, and fleet operators may weaken. ICRA believes that any stress will be localized, supported by healthy corporate balance sheets, bank asset quality, and capitalization. Uncertainty regarding US tariffs remains an additional risk, especially for exporters and generic manufacturers.
Corporate leverage is at a ten-year low of 2.0 times, with cash covering almost half of total debt. Government support, public investment, and infrastructure and clean energy spending should provide additional buffers against external shocks.