A rate hike is coming but India Inc isn’t sweating

India Inc appears unfazed by an upcoming rate hike, according to credit ratings agency Crisil. The agency anticipates the Reserve Bank of India will raise rates by 0.50 percentage points later in the year. Crisil highlights that El Nino-induced rainfall shortages are not expected to harm rural demand, as non-crop incomes make up over 40% of agricultural output.

The agency also maintains a stable outlook on credit performance, citing geopolitical tensions from the US-Israel conflict in the Middle East as unlikely to impact corporate India. Crisil's chief credit officer, Subodh Rai, stated that the stress tests conducted by the agency have reduced the number of vulnerable sectors from six at the start of the fiscal year to three.

These sectors, which include diamond polishers, specialty chemicals, and polyester textiles, could be at risk due to the conflict. In contrast, airlines, ceramics, and flexible packaging have seen their credit quality outlook upgraded to stable. Crisil projects that the banking system's gross non-performing assets ratio may increase slightly to between 1.9-2% by the end of the fiscal year, compared to 1.8% in the previous year.

Despite the ongoing war, the agency notes that India Inc is navigating global headwinds resiliently, reporting 190 upgrades versus 63 downgrades in its rated universe during the April-September period.