The prolonged supply-chain disruptions triggered by the ongoing West Asia conflict are expected to significantly dent corporate profitability this fiscal year, according to a report from rating agency Crisil.

Operating profitability of Indian companies could decline by nearly 200 basis points from the pre-conflict estimate of 12%, with some sectors seeing a more pronounced impact, it said.

The protracted conflict in West Asia has been goading domestic companies to realign supply chains, navigate pricing issues, manage higher fuel and freight costs and contend with a depreciating rupee, the rating firm said in a report.

The decline in profitability reflects the mounting pressure from higher logistics costs, delayed shipments and volatile commodity prices.

“For companies, managing costs and profitability will be a bigger challenge than achieving topline growth. Of the 34 sectors stress-tested, 22 would see operating profitability being culled more than 10% due to higher inventory costs and inability to fully pass on the burden to consumers immediately,” said Subodh Rai, Managing Director, Crisil Ratings.

With the conflict and disruptions into their third month and the situation still evolving, Crisil conducted a stress test of 34 sectors, which account for 65% of its rated corporate debt. “We have assumed supply-chain disruptions could last for nine months this fiscal (compared with six months in our base case), with crude oil prices averaging $110 per barrel for this fiscal (versus a base case assumption of $95),” Crisil said.

Crisil said it assessed the impact on sectoral revenue, operating profitability and the resilience provided by balance-sheet strength to determine the impact on credit quality.

From a credit-quality perspective, however, Crisil analysis shows India Inc will remain resilient on the back of strong balance sheets, steady domestic demand and government-led capital expenditure, enabling it to navigate profitability pressures stemming from the lingering geopolitical uncertainties.

On the other hand, even a partial pass-through can drive up realisations, resulting in a lower impact on revenue growth for most sectors. Further, credit profiles will be cushioned by controlled gearing levels and sustained domestic demand, it said.

“Consequently, we foresee the credit quality of only eight sectors, accounting for 10% of our rated corporate debt, being materially impacted,” Rai said. Over the past decade, corporate India’s median gearing has halved to 0.5 time as of March 2026, while interest coverage has doubled to over 5 times.

Consequently, robust balance-sheets are providing sufficient headroom for India Inc to navigate the profitability pressures emanating from the West Asia conflict, thereby keeping credit profiles resilient. Balance-sheet strength should sustain this fiscal, even as working capital needs inch up, Crisil said.

Credit quality has been supported by policy interventions in times of non-linear events such as the Covid-19 pandemic and the tariff tribulations last year.

The recently announced Emergency Credit Line Guarantee Scheme (ECLGS) 5.0 is timely in supporting MSMEs —characterised by limited balance-sheet buffers and consequently higher vulnerability to the West Asia conflict — by alleviating credit quality pressures. “Our overall outlook for India Inc’s credit quality remains stable but cautious,” Crisil said.