US Tariffs to Weigh on India Inc's Rating Prospects in H2 FY26 Amid Iran Conflict Risks

Credit Profiles of Indian Companies to Moderate Amid US Tariff Orders and West Asia Conflict

Rating agencies have expressed concerns that the ongoing West Asia conflict and US tariff orders may moderate the credit profiles of Indian companies in the second half of financial year 2026. According to Crisil Ratings, a leading credit rating agency, the conflict's duration will play a crucial role in determining the impact on Indian companies.

Crisil conducted a stress test on the likely impact of the West Asia crisis on Indian companies, revealing that 23 out of 30 sectors with exposure to the Gulf region will be resilient to the pressure. Despite this, the agency remains cautious, as the duration and intensity of the conflict are uncertain. If the conflict prolongs, slower global growth, gas availability challenges, higher-for-longer crude oil prices, and a negative impact on consumer sentiment will be closely watched.

The credit ratio, or the proportion of rating upgrades to downgrades, moderated to 1.50% in the second half of FY26, with 383 upgrades to 255 downgrades. This moderation was attributed to the impact of US tariffs on export-oriented sectors, particularly textiles.

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The agency expects that the 23 sectors accounting for 58% of the rated debt will show resilience if the war continues for four months. However, airlines, speciality chemicals, auto components, diamond polishing, and ceramics are likely to be adversely impacted by the conflict.

Amid the sharp depreciation of the rupee, Crisil Ratings believes that there will not be a major impact on companies, as they either have a natural hedge through trade or have forward cover on their forex exposure.

India Ratings, another credit rating agency, also noted that the impact of the West Asia conflict depends on how long it lasts and how quickly supply chains can normalise. The agency upgraded 361 ratings in FY26 and downgraded 115, and termed the outlook for FY27 as "cautious".

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India Inc will face a confluence of risks in FY27, including energy availability, input costs, inflation dynamics, fiscal balances, subdued global trade, and El Nino concerns. Energy-intensive segments, such as fertilisers, ceramics, glass, aviation, packaging, and quick service restaurants, face the sharpest near-term pressure from supply disruptions and input cost spikes.

Icra Ratings witnessed 388 upgrades and 124 downgrades in FY26, but underlined that the West Asia conflict is a key monitorable. Care Ratings noted that the credit ratio in its universe has slipped to 1.93 times in H2FY26 from 2.56 times in the first half, with 363 upgrades and 188 downgrades between September 2025 to March 2026.