The prolonged conflict in West Asia is increasing cost pressures on India’s textile and readymade garment (RMG) sectors as companies grapple with supply-chain disruptions, elevated fuel and freight expenses, and a weakening rupee, according to Crisil Ratings.
In a recent assessment, the ratings agency stated that crude-linked sectors, including polyester textiles, are likely to face pressure on operating profitability as companies may only be able to partially pass on higher input costs to consumers, and that too with a delay.
Crisil Ratings conducted a stress test covering 34 sectors, representing around 65% of its rated corporate debt. The analysis assumed that supply-chain disruptions would continue for nine months during the current fiscal year and that crude oil prices would average US $110 per barrel, compared to its base-case estimate of US $95 per barrel.
The agency estimated that prolonged disruptions could reduce corporate operating profitability by approximately 200 basis points this fiscal year from the pre-conflict expectation of nearly 12%.
Subodh Rai, MD, Crisil Ratings, stated that managing costs and profitability would become a greater challenge for companies than achieving topline growth. He noted that 22 of the 34 sectors analysed in the stress test could witness operating profitability decline by more than 10% due to rising inventory costs and the inability to immediately pass on higher costs to consumers.
Despite the pressure on profitability, Crisil said the credit quality of Indian companies is expected to remain supported by strong balance sheets, controlled gearing levels, and stable domestic demand.
The report added that export-oriented sectors such as textiles and readymade garments could derive some benefit from rupee depreciation, alongside industries including pharmaceuticals, shrimp processing, and electronics manufacturing.
According to Crisil, the median gearing ratio of corporate India has declined by half over the past decade to around 0.5 times as of March 2026, while interest coverage has more than doubled to above five times. The agency said these factors provide companies with greater resilience against geopolitical disruptions.
Crisil also highlighted that policy initiatives such as the Emergency Credit Line Guarantee Scheme (ECLGS) 5 are expected to support MSMEs, which remain more vulnerable because of limited balance-sheet buffers.
Somasekhar Vemuri, Senior Director, Crisil Ratings, stated that the overall outlook for India Inc’s credit quality remains stable but cautious amid uncertainty regarding the duration and intensity of the West Asia conflict. He added that a prolonged conflict could further intensify inflationary pressures and demand disruptions, with fuel prices remaining a critical factor influencing corporate profitability and credit quality.
