New Delhi, April 14 (NationPress) India is well-equipped to handle a significant energy shock, thanks to its strong domestic fundamentals, potential government backing, and considerable enhancements in the health of its corporate and banking sectors in recent years, according to a report released on Tuesday.

The analysis from S&P Global Ratings indicates that healthy corporate balance sheets and the banks' robust capital and profitability will help shield the economy from rising energy costs.

"India's solid external position provides it with the necessary buffers to absorb some shocks from an increased import bill," the report states, adding that ratings for the sovereign, corporate, and banking sectors are not anticipated to experience immediate downgrades due to the ongoing conflict in West Asia.

In a stress scenario where oil prices average $130 per barrel by 2026, the ratings agency predicts that growth could decelerate by as much as 80 basis points from its baseline forecast, temporarily straining the government's fiscal situation.

It is expected that corporate sector EBITDA could decline by 15% to 25%, with leverage potentially increasing by about 0.5x to 1x EBITDA in fiscal 2027; the quality of banking assets is also likely to deteriorate, with non-performing loans rising to 3.5%, it noted.

Neel Gopalakrishnan, a S&P Global Ratings analyst, mentioned that credit quality should see a significant rebound in fiscal 2028, owing to elevated yet relatively lower energy prices.

The agency anticipates “generally strong performance for Indian corporations and banks in fiscal 2026,” while noting that a critical factor will be any adjustments to capital expenditure plans in the industrial sector.

“Long-term growth strategies are expected to remain stable. Nevertheless, the war's impact on cash flows over the next 12-18 months and the expectations for demand may lead to temporary slowdowns in expansion capacity,” the report highlighted.

The Reserve Bank of India has established a $100 million cap on net open positions for banks to mitigate volatility and alleviate pressure on the rupee. However, this cap may negatively impact foreign exchange revenues for these banks.

“We expect banks to show robust credit growth and profitability in fiscal 2026. Measures taken by the government to address high energy prices might result in a fiscal deficit greater than India's targets this year. However, these measures will not undermine India's commitment to fiscal consolidation over the coming years,” the report concluded.

aar/pk