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According to CareEdge Ratings’ Credit Ratio, or the proportion of rating upgrades to downgrades, rose to 2.56 times in the first half of this fiscal (H1FY26). Up from 2.35 times in the second half of the previous fiscal (H2FY25), the increase underscores strong, broad-based resilience across sectors.

In H1FY26, upgrades improved to 15% from 14% seen in H2FY25, while downgrades remained steady at 6%. In all, there were 282 upgrades and 110 downgrades. Reaffirmations remained largely stable at ~80% over the past three years, indicating that most ratings continued to hold strong despite changing external environment.

Corporate India’s leverage is at decadal lows, reflected in the Total debt/PBILDT  of close to 1.63 times  as of Mar. 31, 2025, which was at 3.07 times as of Mar. 31, 2016. Steady domestic demand and the government’s infrastructure push sustained upgrade momentum, with nearly 40% of all upgrades linked to infrastructure. Yet, the gains were not universal. Small-sized Auto Ancillaries and Dealers, Chemical manufacturers, Small Finance Banks (SFBs) and NBFCs exposed to microfinance and unsecured business loans bore the brunt of challenges, emerging as the sectors with the highest downgrades amid pricing pressures and asset-quality concerns.

Sachin Gupta, Executive Director and Chief Rating Officer, CareEdge Ratings, shared his insights on the evolving economic landscape, stating, “While India Inc.’s performance has improved in H1FY26, 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. Export-heavy sectors may face margin pressures in the near term, even as resilient balance sheets and steady domestic demand continue to cushion the impact. The fact that merchandise exports to US account for just 2% of India’s GDP, with smartphones and generic pharmaceuticals currently outside the tariff ambit, provides some buffer against immediate large-scale disruption. However, if tariffs persist, the second-order effects—such as weakening competitiveness, diversion of capital from export-linked industries, and slower investment flows—could weigh on medium-term credit quality. Going forward, global trade realignments will be the key swing factor for credit quality.”

Against this complex backdrop, India’s infrastructure story continues to shine, supported by policy thrust and steady investment momentum. The credit ratio of the infrastructure sector jumped to 8.54 times in H1FY26, with Transport Infrastructure and Power leading the upgrades. Rajashree Murkute, Senior Director, CareEdge Ratings (Infrastructure Ratings), noted, “Timely commissioning of road and renewable projects, healthier payment cycles from state utilities, and multiple portfolio transactions — including ownership changes to stronger sponsors and bulk transfers to InvITs — have bolstered financial flexibility and improved credit quality. With robust policy support, infrastructure players are better placed, though execution hurdles and rising competitive intensity—especially for mid-sized EPC players—still warrant attention.”

The credit ratio of the manufacturing and services sector remained healthy at 1.72 times in H1FY26, despite some moderation from 2.06 times in H2FY25. Ranjan Sharma, Senior Director, CareEdge Ratings (Corporate Ratings), noted, “While upgrades were mainly driven by domestic-focused mid and small companies, the large size corporates especially in the higher investment-grade rating categories, too, continued to do well - the standout performers being Hospitality in the services space along with Capital Goods, Agricultural Food Products, Iron & Steel, and Real Estate sectors. Downgrades were mainly concentrated in Basic Chemicals, along with small-sized Auto Ancillaries, Trading and Distribution firms, and Ceramic manufacturers. Although high US tariffs on key merchandise exports remain a headwind for sectors having significant exposure to the US market like Cut and Polished Diamonds, Shrimps and Textiles, robust domestic demand and healthy balance sheets of most corporates are expected to help weather near-term challenges.”

Turning from corporates to finance, the Banking, Financial Services, and Insurance (BFSI) sector experienced a notable rebound, with its credit ratio rising to 2.10 times from 1.07 times in H2 FY25. Upgrades were driven by healthier financial risk profiles of Banks and Housing Finance Companies, along with improvements in select groups across other financial services. Downgrades, meanwhile, were concentrated in Small Finance Banks and NBFCs with exposure to microfinance and unsecured business loans, reflecting ongoing pressure on asset quality. Sanjay Agarwal, Senior Director, CareEdge Ratings (BFSI Ratings), said, “The broader BFSI sector remains resilient. Banks and NBFCs with secured portfolios, such as mortgages, continue to hold strong with robust capitalisation and stable asset quality. Microfinance and unsecured lending segments, however, faced elevated credit costs. The abatement of stress in microfinance and adjacent segments is slow and is likely to impact profitability for the next couple of quarters.

Overall, Corporate India has weathered the storm so far, buoyed by strong balance sheets and steady domestic demand. The question now is how well it can navigate the crosswinds still gathering offshore. While infrastructure and domestic-focused companies continue to drive credit momentum, export-linked sectors are navigating headwinds from global trade tensions, particularly rising US tariffs. Consequently, persistent external uncertainties may temper the credit quality outlook for India Inc. and lead to some moderation in the credit ratio in the near term. The coming months will be the real litmus test, as rising trade tensions and market crosswinds challenge India Inc.’s credit strength.

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