Conflict may erode India Inc profitability by 200 bps: Crisil

Bengaluru: Prolonged geopolitical tensions in West Asia could shave nearly 200 basis points off the profitability of Indian companies this fiscal, even as strong balance sheets and steady domestic demand are expected to help corporate India withstand the pressure, according to a stress test conducted by Crisil.

The ratings agency analysed 34 sectors accounting for nearly 65 per cent of its rated corporate debt exposure and assessed the impact of an extended conflict scenario involving nine months of supply-chain disruptions and average crude oil prices of $110 per barrel during the current fiscal.

Crisil said operating profitability across India Inc could decline from the pre-conflict expectation of around 12 per cent, with 22 of the 34 sectors likely to witness a more than 10 per cent erosion in margins due to elevated fuel, freight and inventory costs. Companies are also grappling with a depreciating rupee and delays in passing on higher input costs to consumers.

“Managing costs and profitability will be a bigger challenge than achieving topline growth,” said Subodh Rai, Managing Director, Crisil Ratings. He added that only eight sectors, accounting for about 10 per cent of rated corporate debt, are expected to see a material deterioration in credit quality because of strong balance sheets and resilient domestic demand.

Among the worst-hit sectors, the ceramic industry is expected to face the sharpest impact due to gas shortages and supply disruptions, with revenue potentially falling by one-third and profitability by half. The airline sector could also witness a steep hit to profitability owing to airspace closures, higher aviation fuel prices and rupee depreciation. Other sectors under pressure include polyester textiles, specialty chemicals, flexible packaging, auto components, diamond polishing and basmati rice exports.

However, Crisil noted that Indian corporates are entering this phase with stronger financial metrics than a decade ago. Median gearing has halved to about 0.5 times, while interest coverage has more than doubled to over five times as of March 2026.