India’s robust macroeconomic and financial sector fundamentals are expected to cushion the impact of a sustained oil price shock, according to S&P Global Ratings. The agency noted that economic growth could slow by up to 80 basis points if crude oil averages $130 per barrel in 2026.
Under its stress scenario, corporate earnings before interest, tax, depreciation and amortisation (EBITDA) could decline by 15–25 per cent in FY27, with leverage rising by 0.5x–1x. Banking sector asset quality may weaken, pushing bad loans to around 3.5 per cent.
S&P Global Ratings emphasised that India is not immune to shocks reverberating from the Middle East war. Higher energy prices and supply disruptions may persist for months, affecting households, corporations and banks. However, strong corporate balance sheets, well-capitalised banks and a resilient external position provide buffers against the impact.
The agency’s stress case assumes Brent crude at $130 per barrel in 2026 and $100 in 2027, compared with a base case of $85 and $70 respectively. It does not expect any immediate impact on India’s sovereign rating, though fiscal consolidation efforts could face temporary setbacks.
Higher oil prices could widen the current account deficit, with estimates suggesting a $10 per barrel increase may expand the gap by about 0.4 percentage points of GDP. The rupee could also face depreciation pressures amid risk-off sentiment and a rising import bill.
An energy shock would transmit through higher input costs, squeezed corporate margins, rising consumer prices and increased fiscal strain if the government steps in with subsidies. Growth could also be hit by potential supply disruptions affecting fuel and petrochemicals.
Despite these risks, India entered 2026 with strong growth momentum, resilient domestic demand and low inflation, which should help absorb near-term shocks. S&P highlighted that strong domestic fundamentals, potential government support, and significant improvements in corporate and banking sector health over the past few years would mitigate the severity of any shock.
Sectors such as chemicals, refining and aviation are seen as most exposed, while infrastructure and utilities are expected to remain relatively resilient. Corporate deleveraging in recent years and improved banking sector health are also expected to limit systemic stress.
Indian banks are well positioned to absorb the shock, supported by strong capital buffers and low non-performing assets. Credit costs may rise modestly, and profitability could come under pressure in FY27.
S&P Global Ratings concluded that India can weather a few months of elevated oil prices and supply disruptions. A prolonged shock, however, would pose broader risks to growth, fiscal stability and external balances.
Robust corporate balance sheets provide a cushion against higher energy prices, while banks benefit from strong capital and profitability.
India’s robust external position gives it buffers to absorb some shocks from a higher import bill. S&P therefore does not expect any immediate impact on the ratings of the sovereign, corporates and banks, though fiscal consolidation efforts could face temporary setbacks.
The agency’s base case assumes the war’s intensity will peak and the effective closure of the Strait of Hormuz will ease during April, though some disruptions are likely to persist for months. Should hostilities wind down, the expected impact in fiscal 2027 should be closer to its base case.
PTI
