India’s strong domestic fundamentals, potential government support and significantly improved corporate and bank health would soften the blow from rising oil prices caused by conflict in West Asia, according to S&P Global Ratings. However, persistently high energy costs could still drag down overall economic growth, the rating agency noted.
In its scenario analysis on India, if oil prices average $130 a barrel in 2026, the country’s growth could slow by as much as 80 basis points in FY27.
S&P Global Ratings said that if oil prices remain elevated, corporate profitability would also come under pressure, with earnings before interest, taxes, depreciation and amortization (Ebitda) expected to fall by 15-25% in FY27, while leverage could increase by 50-100%. She drew attention to the quality of assets in the banking system would also likely deteriorate in such a scenario, with bad loans rising to 3.5%.
Despite downside risks, S&P Global Ratings said it expects no immediate impact on sovereign, corporate or bank ratings. However, the government’s fiscal consolidation efforts could face temporary setbacks due to the gravity of the situation, the rating agency said.
Stress test
For scenario analysis, she assumed S&P Global Ratings Brent crude would average $130 a barrel in 2026 and around $100 in 2027. This compares with its base case of $85 per barrel for Brent crude for the rest of 2026 and $70 for 2027. For certain corporate sectors, S&P considered an additional stress scenario – supply chain disruption for up to six months.
“Our base case assumes that the intensity of the war will peak and the effective closure of the Strait of Hormuz will ease during April, but some disruptions are likely to persist for months. If hostilities subside, the expected impact in fiscal 2027 should approach our base case,” the agency said.
“We do not expect the added fiscal stress from the energy shock to affect our sovereign credit rating for India (BBB/Stable/A-2),” S&P Global Ratings said, adding that its Fiscal Performance and Debt Burden Score for India is already at the lowest level on its scale, reflecting India’s already stretched fiscal profile.
The rating agency reported on the health of the banking sector banks are well-positioned to deal with increased oil prices and a weakening rupee, as more than 40% of India’s corporate debt is investment grade, which significantly reduces the risk of default. Asset quality is also likely to remain healthy, with credit losses likely to increase by as much as 0.9% over the next 12-24 months, S&P Global Ratings said.
“We are watching for signs of how quickly India can regain momentum in a scenario where a ceasefire between Iran and its adversaries lasts. However, if hostilities do break out again, we will focus on the measures companies and the government take to prevent a crisis. A prolonged conflict would mean more stress for India, as it would for most regions,” the agency said.
