Crisil Stress Test Flags Profitability Pressure Across India Inc Amid West Asia Conflict

India Inc could face a squeeze on profitability if geopolitical disruptions in West Asia persist for a longer period, according to a stress test conducted by Crisil Ratings across 34 sectors representing around 65 per cent of its rated corporate debt portfolio.

The analysis assumes supply chain disruptions continue for nine months during the current fiscal year, and crude oil prices average $110 per barrel, compared with Crisil’s earlier base assumption of $95 per barrel. Under these conditions, corporate operating profitability is expected to decline by around 200 basis points from pre-conflict expectations of nearly 12 per cent.

The report suggests that profitability pressure could emerge as a larger concern than revenue growth. Crisil estimates that 22 of the 34 sectors assessed would see operating profitability fall by more than 10 per cent due to higher inventory costs and limited ability to immediately pass increased expenses to consumers. However, partial price pass-throughs could limit the impact on topline growth for several sectors.

“Managing costs and profitability will be a bigger challenge than achieving topline growth. Of the 34 sectors stress-tested, 22 would see operating profitability being culled more than 10% due to higher inventory costs and inability to fully pass on the burden to consumers immediately,” said Subodh Rai, Managing Director, Crisil Ratings.

Among the sectors analysed, ceramics are projected to face the most severe impact due to gas shortages and supply disruptions, with revenue potentially declining by nearly one-third and profitability falling by half. Airlines could also see a sharp decline in profitability, driven by airspace restrictions, higher fuel costs and rupee depreciation. Other sectors expected to face pressure include polyester textiles, speciality chemicals, flexible packaging manufacturers, auto component makers, diamond processors and basmati rice exporters.

Crisil, however, believes that stronger corporate balance sheets should prevent broader deterioration in credit quality. Median gearing for corporate India has reduced to around 0.5 times as of March 2026, while interest coverage has more than doubled over the last decade to exceed five times. These factors are expected to provide companies with additional flexibility despite rising working capital requirements.

The report notes that only eight sectors, accounting for roughly 10 per cent of rated corporate debt, could see a material impact on credit quality. Export-oriented sectors, including pharmaceuticals, textiles, readymade garments, shrimp processing and electronics manufacturing, may also see some benefit from rupee depreciation.

Crisil maintained a stable but cautious outlook for overall corporate credit quality, noting that the extent and duration of the conflict, along with any sustained rise in fuel prices, will remain key variables to monitor.