According to CareEdge Ratings, the Credit Ratio, which measures the ratio of rating upgrades to downgrades, rose to 2.56 times in the first half of this fiscal year (H1FY26). This is an increase from 2.35 times in the second half of the previous fiscal year (H2FY25), highlighting significant resilience across various sectors. In H1FY26, the rate of upgrades improved to 15% from 14% in H2FY25, while downgrades remained constant at 6%. Overall, there were 282 upgrades compared to 110 downgrades. Reaffirmations remained stable at about 80% over the last three years, indicating that most ratings have held firm despite a changing external environment.
Corporate India’s leverage is at its lowest in a decade, with a Total debt/PBILDT ratio of approximately 1.63 times as of March 31, 2025, down from 3.07 times on March 31, 2016. Steady domestic demand and the government’s push for infrastructure have sustained upgrade momentum, with nearly 40% of upgrades related to infrastructure. However, not all sectors benefited equally. Small Auto Ancillaries and Dealers, Chemical manufacturers, Small Finance Banks (SFBs), and Non-Banking Financial Companies (NBFCs) involved in microfinance and unsecured loans faced significant challenges, resulting in the highest downgrades due to pricing pressures and asset-quality issues.
Sachin Gupta, Executive Director and Chief Rating Officer at CareEdge Ratings, commented on the shifting economic landscape, noting, “While India Inc.’s performance has improved in H1FY26, the external environment is becoming increasingly complex. The sharp rise in US tariffs is altering trade flows and supply chains, presenting challenges for Indian companies and delaying private sector capital expenditure until demand becomes clearer. Sectors heavily reliant on exports may experience margin pressures in the near term, even as strong balance sheets and consistent domestic demand provide some cushioning. Since merchandise exports to the US only account for 2% of India’s GDP, with smartphones and generic pharmaceuticals currently unaffected by tariffs, there is some protection against immediate disruptions.
Nonetheless, if tariffs remain, secondary effects—such as diminished competitiveness, capital diversion from export-focused sectors, and reduced investment flows—could negatively impact medium-term credit quality. Moving forward, global trade realignments will significantly influence credit quality.” In this complex environment, India’s infrastructure sector continues to thrive, bolstered by policy support and ongoing investment. The credit ratio for infrastructure surged to 8.54 times in H1FY26, with Transport Infrastructure and Power leading the upgrades. Rajashree Murkute, Senior Director at CareEdge Ratings (Infrastructure Ratings), observed, “The timely completion of road and renewable energy projects, improved payment cycles from state utilities, and various portfolio transactions—such as ownership changes to stronger sponsors and bulk transfers to InvITs—have enhanced financial flexibility and credit quality.
With strong policy backing, infrastructure companies are in a favorable position, although execution challenges and rising competition—particularly for mid-sized EPC firms—still need attention.” The credit ratio for the manufacturing and services sector remained robust at 1.72 times in H1FY26, despite a slight decrease from 2.06 times in H2FY25. Ranjan Sharma, Senior Director at CareEdge Ratings (Corporate Ratings), noted, “While upgrades were primarily driven by domestic-focused mid and small companies, larger corporates, especially those in higher investment-grade categories, also performed well, with standout sectors including Hospitality, Capital Goods, Agricultural Food Products, Iron & Steel, and Real Estate. Downgrades were mostly concentrated in Basic Chemicals, along with small Auto Ancillaries, Trading and Distribution companies, and Ceramic manufacturers.
Although high US tariffs on key exported goods pose challenges for sectors significantly exposed to the US market, such as Cut and Polished Diamonds, Shrimps, and Textiles, strong domestic demand and sound balance sheets are expected to help mitigate short-term challenges.” Shifting focus to finance, the Banking, Financial Services, and Insurance (BFSI) sector saw a significant recovery, with its credit ratio increasing to 2.10 times from 1.07 times in H2 FY25. Upgrades were influenced by healthier financial profiles of Banks and Housing Finance Companies, along with improvements in select groups across other financial services. Downgrades were concentrated in Small Finance Banks and NBFCs with exposure to microfinance and unsecured loans, reflecting ongoing asset quality pressures.
Sanjay Agarwal, Senior Director at CareEdge Ratings (BFSI Ratings), remarked, “The broader BFSI sector remains resilient. Banks and NBFCs with secured portfolios, such as mortgages, continue to exhibit strength with robust capital positions and stable asset quality. However, segments like microfinance and unsecured lending are facing high credit costs. The resolution of stress in microfinance and related areas is gradual and is expected to impact profitability over the next few quarters. Overall, Corporate India has managed to endure the challenges so far, supported by strong balance sheets and steady domestic demand. The key question now is how effectively it can navigate the emerging crosswinds.
While infrastructure and domestic-focused companies continue to propel credit momentum, export-oriented sectors are confronting obstacles due to global trade tensions, particularly increasing US tariffs. As such, ongoing external uncertainties may dampen the credit quality outlook for India Inc. and result in some decline in the credit ratio in the near term. The upcoming months will serve as a true test, as escalating trade tensions and market fluctuations challenge India Inc.’s credit resilience.