Strong domestic demand, government infrastructure investment, and companies reducing debt supported India's corporate credit profile for the fifth year in FY26. Favorable economic conditions and domestic policies were key to maintaining this strength.
In FY26, 361 companies (19% of the reviewed portfolio) received upgrades, while 115 companies (6%) were downgraded. The upgrade-to-downgrade ratio was 3.1, down slightly from 3.5 in FY25. Defaults increased marginally to 0.8% from 0.6% a year earlier. Rating affirmations for rated debt remained strong at 94%.
Arvind Rao noted that structural measures like income tax cuts, GST adjustments, and the Reserve Bank of India's rate cuts (125 basis points) boosted corporate performance. Favorable monsoons also contributed to stronger demand and upward revisions in GDP growth forecasts.
However, the agency warned of emerging global geopolitical risks, particularly conflicts that could disrupt India's energy supply. While these early signs of stress were not fully reflected in FY26 credit profiles because the escalation happened late in the fiscal year, Ind-Ra cautioned that FY27 could bring significant challenges, especially for companies with lower credit ratings.
Credit Rating Differences Emerge
Companies rated 'A' and higher are expected to remain strong. But, those rated 'BBB' and below could face significant challenges. Suparna Banerji pointed out that higher-rated companies had a strong upgrade-to-downgrade ratio of 4.4, compared to 2.3 for 'BBB' and lower-rated entities.
Sector Performance Highlights
Infrastructure firms led rating upgrades, accounting for about one-third of the total. This was driven by ongoing capital spending, better project execution, and clearer cash flow forecasts. Renewable energy and road infrastructure sectors continued to see many upgrades. Sectors tied to consumer spending, such as commercial real estate, autos, consumer services, and healthcare, also greatly benefited from strong domestic demand and higher incomes.
Sectors Facing Challenges
Conversely, downgrades were concentrated in sectors sensitive to fluctuating raw material costs, including fast-moving consumer goods (FMCG), auto dealerships, and construction materials. The chemicals sector also faced pressure from lower selling prices, increased imports, and weak export demand.
While FY26 confirmed India Inc.'s lasting credit strength, the changing global climate, with geopolitical tensions and energy supply risks, could challenge corporate finances in the next fiscal year, particularly for companies with weaker credit profiles.