Corporate India has had to navigate several challenges in 2025.
On the one hand, geopolitical tensions continue to weigh, and on the other, the 50 per cent tariffs announced by the US Administration are set to hit export-oriented sectors.
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Despite these challenges, corporate credit profiles have remained fairly resilient, aided by so far strong domestic growth and the recently announced GST (Goods and Service Tax) cuts, which are expected to boost consumption-oriented sectors.
Data from various credit rating agencies shows upgrades of credit ratings continue to significantly exceed ratings downgrades.
However, not all is well across all sectors.
According to Crisil, in the April-September 2025 period, there were 499 credit rating upgrades, while there were 230 downgrades. ICRA upgraded ratings for 214 companies while downgrading 75. India Ratings, on the other hand, upgraded 181 issuers, while it downgraded 57.
“Sustained pace of infrastructure development on the back of government-led capital expenditure, timely project completions and healthy revenue visibility have bolstered the credit quality of infrastructure and linked sectors. Notably, around 45 per cent of the downgrades were in these sectors,” noted Subodh Rai, the MD of Crisil Ratings.
There were more downgrades in export-oriented sectors. Gem and jewellery exporters, textile manufacturers, and shrimp exporters are likely to be hit hard following the 50 per cent tariff announcement by the United States, which is a large market for these companies. Close to 30 per cent of its downgrades were from some of these export-oriented sectors, said Rai.
“The imposition of steep 50 per cent tariff on Indian exports to the US presents a significant challenge for exporters, particularly in sectors such as cut and polished diamonds, textiles, and seafoods, which are heavily reliant on the US market,” agreed K. Ravichandran, executive vice-president and chief ratings officer at ICRA.
While there may be global headwinds, macroeconomic conditions remain favourable, with close to decade-low inflation, the Reserve Bank of India’s monetary policy committee slashing the repo rate by 100 basis points (1 per cent), and policy measures like the GST cut and the reduction in income tax earlier in the Budget, which should boost consumption.
“Domestic consumption is likely to receive a boost from GST rate rationalisation, income tax relief, transmission of rate cuts, and easing inflation, particularly aiding urban demand, which has seen uneven recovery thus far,” said Ravichandran.
ICRA has raised its full-year 2025-26 GDP growth forecast upwards by 50 bps to 6.50 per cent. While domestic measures to boost consumption should cushion the adverse effects of the US import tariffs, any extension of the protectionist measures to the services sector will be a key monitorable, according to him.
The operating profit of diamond polishers is likely to be curtailed as the tariff challenges will exacerbate demand pressures at a time competition has intensified from lab-grown diamonds.
For shrimp exporters, orders got front-loaded ahead of the tariff announcement. Still, Crisil expects their revenue to decline sharply. Home textile makers are also expected to see some decline in revenue due to the tariffs, but any supply chain rejig by US customers will take time, it said.
One good thing is that the credit defaults in the domestic market remain extremely low.
Over the last few years, corporates have deleveraged their balance sheets, and banks too have cleaned up their bad loans. India Ratings indicated defaults stood at 0.9 per cent in the first half of this financial year—slightly higher than 0.7 per cent in the first half of last year. ICRA reported a default rate of just 0.2 per cent among its portfolio.
According to CareEdge, the total debt/PBILDT (profit before interest, lease, depreciation and tax) was close to 1.63 times as of March 31, 2025, compared to 3.07 times in March 2016.
However, should the tariffs persist, there could be second-order effects like weakening competitiveness, slower investment flows, and perhaps diversion of capital from export-linked industries, and these could weigh on medium-term credit quality, say experts.
Tariffs are not the only worry: the continued rupee depreciation against the US dollar also remains a challenge for corporates. So far in 2025, the rupee has been one of the weakest-performing emerging market currencies and touched 88.8 to the US dollar. Generally, a falling rupee should offer some relief for exporters; it will also weigh on the profitability of Indian corporates.
Despite healthy balance sheets and the expected consumption boost domestically, a broad-based recovery in private sector investments is still some time away, say experts.
“While India Inc.’s performance has improved in the first half of FY26, the external environment is turning more complex by the day. The sharp escalation in US tariffs is reshaping trade flows and supply chains, creating challenges for Indian companies and keeping private sector capex in abeyance until there is greater clarity on demand,” said Sachin Gupta, executive director and chief rating officer at CareEdge Ratings.
ICRA’s Ravichandran also noted that while certain sectors may witness a pick-up in private capex due to improved domestic demand, the subdued export outlook was likely to delay any broad-based private capex recovery.