MUMBAI: Despite the ongoing global uncertainties, including the tariff-woes and geopolitical tensions, the credit profile of corporate India is remarkably resilient with credit ratios printing in around 3x and benign credit conditions with default rate at 0.2% in H1. Rating agencies expect the tariff woes not to impact the overall economy much given its domestic demand dependency.
Rating agencies Icra and Crisil’s actions in the first half of FY26 underscore the strength of corporate balance-sheets and the supportive domestic business environment. During H1, Icra has upgraded ratings of 214 entities as against only, 75 downgrades resulting in a robust credit ratio of 2.9x. This marks a significant improvement over the credit ratio of 2x in FY25 and 2.2x in H1FY25.
K Ravichandran, executive vice-president & chief rating officer at Icra, told reporters on a conference call that the steep 50 percent tariff on Indian exports to the US presents a significant challenge for exporters, particularly in sectors such as cut & polished diamonds, textiles, and seafood, as these sectors are heavily reliant on the US market.
However, the domestic-focused nature of the economy is expected to limit the broader macro impact posed by higher US tariffs, he said. Domestic consumption is likely to receive a boost from GST and income tax cuts, transmission of monetary rate cuts, and easing food inflation, particularly aiding urban demand, which has seen uneven recovery thus far.
“In view of these positive domestic trends, we have revised its GDP growth forecast for FY26 upward by 50 bps to 6.5 percent, helping to cushion the adverse effects of the US tariffs. That said, the potential extension of protectionist measures to the services sector remains a key monitorable. If enacted, the proposed HIRE Act can significantly disrupt our outsourcing industry, given its substantial reliance on the US market," warned Ravichandran.
Icra said the rating upgrades in H1 were largely driven by entity-specific factors such as the improvement in business fundamentals, strengthening of the parent’s credit profile, and reduced project risks in sectors like power and roads. Key business drivers included market share expansion, order book growth, operating leverage from scale, and favourable shifts in product mix and cost structures.
Industry-specific factors also influenced rating actions, notably in the hospitality, microfinance, and chemical sectors. Power, realty and hospitality sectors, contributed to half of the rating upgrades.The 50% tariffs imposed by the US on our exports pose a significant risk to our merchandise trade going forward. Given that the US accounts for nearly 20% of our exports and 50–60% of these are now vulnerable, merchandise exports could contract 4–5% in FY26 if the higher tariffs persist through March.
This decline may widen the trade deficit and push the current account deficit to around 1.2% of GDP in FY26.The only saving grace for exporters is the falling rupee, which has already plumber 88.8, the agency said but warned that “while the depreciation may offer some relief to exporters, it could weigh on the profitability of India Inc.
Nevertheless, the range-bound commodity prices are likely to limit the overall impact.”“Despite the external headwinds, the overall impact on the economy is expected to remain limited due to its domestic- oriented nature, with exports to the US accounting for only 2% of GDP and domestic private consumption contributes 57% of GDP, is poised to get a boost from the recent GST rate cuts," Ravichandran said.
Corporate balance-sheets have strengthened significantly over the past decade and the total debt-to-operating profit ratio declined from 3.4x in March 2016 to 2.1x in March 2025, while the proportion of cash and current investments relative to total debt improved from 32 percent to 46%.Meanwhile, Crisil Ratings said its credit ratio, or the proportion of rating upgrades to downgrades, stood at 2.17x in the first half, moderating from 2.75x in the first half of last fiscal.
Overall, there were 499 upgrades and 230 downgrades and rating reaffirmation rate stood at 80% underscoring the resilience of corporates during the period.The upgrade rate of 14% outpaces the average of 11% over the past decade, Crisil said, adding while upgrades were broad-based, the infrastructure and related sectors such as construction and engineering, roads, renewables, capital goods and secondary steel were at the forefront.
Downgrade rate was at 6.4%, in line with the 10-year average and came in mostly from export-linked sectors bearing the brunt of US tariffs. These include diamond polishers, shrimp exporters and home textile manufacturers, Subodh Rai, managing director of the agency.
“Sustained pace of infrastructure development on the back of government-led capex, timely project completions and healthy revenue visibility have bolstered the credit quality of infrastructure and linked sectors. Notably, around 45 percent of the upgrades are in these sectors.
Conversely, softening global demand and consequent profitability pressures amid tariff concerns impacted a few export-oriented sectors and about 30% of the downgrades are in these sectors,” Rai added. Though the income tax and GST cuts will benefit the overall economy and cushion lot of the hits from the US tariffs, the tariffs woes will continue to weigh on the credit quality of some export-linked sectors given that the country accounts for 20 percent of our merchandise exports and significantly more for some of the impacted sectors.
To be sure, frontloading of revenue by exporters in the first half will mean the full impact of the tariffs may not be visible this fiscal. The second-order impact of slower global growth and dumping by competing nations in the domestic and other export markets need monitoring. Other restrictive measures such as a substantial hike in H-1B visa fee may not impact profitability significantly, particularly for the information technology sector as companies recalibrate their resource strategies, said Somasekhar Vemuri, a senior director with Crisil.