The credit ratio, or the proportion of rating upgrades-to-downgrades, stood at 1.50 times in the second half of fiscal 2026, moderating from 2.17 times in the first half.
Overall, there were 383 upgrades and 255 downgrades during the period.
Also, the reaffirmation rate was ~82% vs ~80% in the previous half, underscoring the resilience of companies.
The upgrade rate, though, declined to ~10.6% from 14.0% in the previous half, aligning with the 11% average of the past decade. Infrastructure and related sectors—construction and engineering, roads, renewables, capital goods—and healthcare were at the forefront of the upgrades.
The downgrade rate edged up to 7.0% from 6.4% in the first half, a tad higher than the 10-year average. Consequently, the credit ratio moderated, with the overhang of tariff-related uncertainties impacting companies with greater dependence on exports.
Going forward, India Inc is expected to benefit from the tailwinds of the goods and services tax (GST) rationalisation and some lag effect of income tax cuts announced last year, infrastructure capital expenditure (capex) spends of the government, and reversal of the US reciprocal tariffs. Defence, infrastructure and healthcare sectors should continue to see improvement in credit profiles.
The West Asia conflict, however, would increase cost pressures and necessitate a realignment of supply chains for India Inc. Amid this, India Inc's credit quality outlook for fiscal 2027, though, is stable but cautious.
We conducted a stress test of 30 sectors exposed to the West Asia conflict either directly or indirectly, accounting for 65% of our rated corporate debt.
Our assessment indicates 23 of the 30 sectors will see limited impact on their credit profiles because of the conflict, despite higher input prices and disruption in natural gas supply. Clearly, strong balance sheets (median debt-to-equity ratio of 0.45 time as on March 31, 2026) lends cushion. The impact could be moderately negative for six sectors and adversely affect one. A prolonged conflict would, however, be a systemic risk and could have a cascading impact on India Inc's credit quality.
