Indian Firms Defy Global Headwinds, Credit Quality Soars in FY26

The report noted that timely policy interventions by the Government of India, aimed at supporting domestic consumption and sustaining infrastructure investment, helped anchor credit quality and mitigate external headwinds during the year.

It stated, "the credit profile of Indian corporates remained resilient in 2025-26 despite the challenging global environment marked by tariff-related disruptions and heightened geopolitical tensions".

Reflecting this resilience, ICRA upgraded the ratings of 388 entities in 2025-26, while 124 entities were downgraded, resulting in a strong credit ratio of 3.1 times.

This marks a significant improvement compared to a credit ratio of 2.0 times in 2024-25 and 2.1 times in 2023-24, indicating broadly stable and improving credit quality trends across sectors.

As the fiscal year drew to a close, the report highlighted that external pressures had started to ease, supported by lower tariff-related risks and improving domestic macroeconomic conditions, placing the Indian economy on a favourable footing entering 2026-27.

However, the escalation of the West Asia conflict has once again underscored the interconnected nature of global economies and the potential spillover risks for India.

ICRA said rating upgrades during the year were driven by entity-specific factors such as strengthening business profiles, improvement in parent credit quality, reduction in project risks, especially in sectors like power and roads, and improved financial profiles through equity infusions or debt reduction.

Strong domestic demand and the government's continued focus on infrastructure development and clean energy further supported corporate performance.

The report also noted that the large rating change rate (LRCR) stood at 1.2 per cent, lower than the five-year average of 1.5 per cent, indicating stability in credit movements.

On the external front, trade policy developments played a significant role during the year. The US and the EU together account for around 40 per cent of India's exports.

The imposition of a 50 per cent tariff by the US had impacted export competitiveness in sectors such as diamonds, textiles and seafood. However, an interim trade arrangement in February 2026 reduced tariffs to 18 per cent, followed by a uniform global tariff of 10 per cent, easing some pressure.

The report further highlighted that the India-EU trade agreement, signed after two decades of negotiations, is expected to create the world's largest free trade zone, accounting for around 25 per cent of global GDP and 20 per cent of global trade

India's external vulnerability remains elevated due to its import dependence, with around 45 per cent of imports comprising oil and gas, gold, diamonds and fertilisers, much of which is sourced from West Asia.

The region also accounts for nearly 15 per cent of India's exports and about one-third of inward remittances, increasing exposure to geopolitical risks.

Looking ahead, ICRA said domestic consumption and continued government focus on infrastructure will remain key growth drivers in 2026-27.

- ANI