West Asia crisis | Surge in energy costs will hit profit margins of Indian firms: Crisil

New Delhi: Surge in energy costs due to the ongoing West Asia conflict will hit profit margins on Indian companies, especially in sectors like petrochemicals, man-made textiles, paints, packaging, airlines and transportation, ratings agency Crisil said on Wednesday.

In its latest edition of India Outlook report, the rating agency noted that crude oil price in the financial year 2026-27 will be higher than the current fiscal.

"The force majeure declared by the suppliers in the Middle East and a tight global balance after the decoupling of European supplies from Russia are expected to keep prices elevated," it said.

The West Asia conflict is expected to impact corporate margins, both via direct and indirect cost escalations and disruption in raw material availability.

However, domestic consumption and a small improvement in exports will provide some support, Crisil said.

Beyond the near-term volatility, as supply conditions stabilise and demand growth remains moderate, crude prices are likely to consolidate in the second half, implying a full-year average of $75–80 per barrel for fiscal 2027 with an upside risk.

Conversely, if the disruption persists for a prolonged period, tighter balances would keep prices elevated, it said.

Corporate revenue growth is expected to stay in the 8-9 per cent range, backed by resilient consumption and a gradual pick-up in private investment, though commodity‑linked sectors may face pricing pressure and growth in construction‑related segments could moderate.

With growth in realisations subdued, EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation)) margins could decline 40-60 bps amid temporary supply disruptions.

“If crude or gas prices stay higher for longer, there could be further strain. Volatility and upswing here will impact margins in sectors such as airlines, ceramics, chemicals, fertilisers, paints, petrochemicals and tyres,” Crisil said.

On the overall economy, Crisil said India’s real gross domestic product (GDP) growth is likely to moderate to 7.1 per cent in 2026-27 from 7.6 per cent in the current fiscal.

“India has grown steadily in an environment buffeted by exogenous uncertainties. Our fiscal 2027 forecast reflects its strong domestic counterweights, especially consumption, infrastructure capex, uptick in the private investment cycle led by emerging sectors and gradually improving trade competitiveness," said Amish Mehta, Managing Director and CEO, Crisil.

“However, continuing geopolitical conflicts, the proliferation of technology-driven disruptions, public debt levels and climate vagaries will need close monitoring," Mehta added.

The 7.1 per cent GDP growth forecast for 2026-27 is predicated on four assumptions: one, another spell of normal monsoon this year (with a likelihood of El Niño conditions forming after August); two, benign food inflation in spite of an uptick from a statistical low-base effect; three, the price of Brent crude hovering at $75-80 per barrel; and four, steady global growth even as tariff- and geopolitics-led uncertainties persist.