High Energy Costs, Geopolitical Friction To Weigh on Near-Term Credit: Moody’s
As per a statement issued by Moody’s, Indian corporates are currently in a better financial position to absorb external shocks, supported by deleveraging, healthy liquidity and supportive policy frameworks. “Persistently high energy prices and structural shifts in key service industries could test credit strength over the coming quarters.”
New Delhi: Leading rating agencies on Monday flagged concern over Indian industry for high-energy costs and structural shifts in the key service sectors following the ongoing conflict in the Middle East. With the heightened geopolitical risks, they also categorically said that state-owned oil marketing companies and downstream fuel retailers face acute margin pressure as elevated costs.
Global rating giant Moody’s Ratings said that the elevated energy prices are expected to weigh on the near-term credit conditions of Indian industry, despite robust balance sheets and favourable long-term growth prospects. At the same time, domestic rating agency Icra also projected that the operating environment for corporate India in FY2026-27 could be hurt due to the ongoing tensions in the Middle East and evolving trade tariff developments with the US.
As per a statement issued by Moody’s, Indian corporates are currently in a better financial position to absorb external shocks, supported by deleveraging, healthy liquidity and supportive policy frameworks. “Persistently high energy prices and structural shifts in key service industries could test credit strength over the coming quarters,” it said.
“The conflict in the Middle East will weigh on near-term earnings and cash flows for energy-intensive and fuel-dependent sectors. India's heavy reliance on imported crude oil, liquefied natural gas and certain petroleum products exposes corporates to higher input costs, currency volatility and supply chain disruptions,” Moody’s said.
Commenting on the development, Moody’s Ratings managing director Vikash Halan said that state-owned oil marketing companies and downstream fuel retailers face acute margin pressure as elevated costs are only partially passed through to consumers, while fuel-intensive sectors such as cement, chemicals, fertilisers and aviation are seeing rising cost burdens.
Similarly, Icra also expects the operating environment for corporate India in FY 2026-27 to be shaped by heightened geopolitical risks, particularly the ongoing tensions in the Middle East and evolving trade tariff developments with the US. Against this backdrop, the rating agency has revised the outlook to negative for aviation, fertilisers, and the refining and marketing segment within oil and gas.
Noting that not all sectors face headwinds, Icra also said that sustained improvement in order books has driven a positive outlook for capital goods and defence, while healthcare maintains a favourable position as demand for medical treatments and preventive services continues to rise. “Weather-related risks present an additional layer of uncertainty. El Nino-like conditions could disrupt monsoon distribution, weighing on rural incomes and discretionary spending,” it added.
“While government support measures and minimum support price interventions could partially mitigate income risks, a weaker agricultural outcome could temper rural discretionary consumption. Accordingly, there could be downward pressure on demand in sectors like tractors, two-wheelers, FMCGs and construction materials linked to rural housing,” said K Ravichandran, Icra EVP and chief ratings officer.
