India faces a significant potential headwind as S&P Global Ratings issued a stark warning regarding energy price shocks. The global ratings agency suggests India’s economic growth could decelerate by up to 0.8 percentage points in fiscal 2027. This projection is linked to a severe energy shock scenario originating from the Middle East conflict.
The report highlights the vulnerability of India’s growth trajectory if crude oil prices average $130 per barrel in 2026. This substantial rise in commodity costs would directly threaten the base-case estimate of 7.1 percent GDP growth planned for FY27.
Assessing the Macroeconomic Shock: S&P’s Deep Dive
S&P Global Ratings models its stress scenario assuming oil prices average $130 per barrel in 2026, followed by $100 per barrel in 2027. This stands in sharp contrast to the agency’s base case, which anticipates oil prices of $85 per barrel for the rest of 2026 and $70 in 2027.The high energy cost environment would create significant pressure on households, various companies, and the banking sector. It would also complicate the government’s efforts toward fiscal consolidation.
However, the agency provided crucial context, noting that any deterioration in public finances resulting from measures meant to cushion consumers from sudden fuel price shocks would likely be temporary in nature.
Impact on Corporate and Financial Metrics
For the corporate sector, S&P estimates a sharp decline in earnings. Specifically, the EBITDA of the top 100 listed firms could fall by up to 25 percent compared to previous expectations.Furthermore, financial leverage is expected to face pressure. The debt-to-EBITDA ratio could potentially double in FY27 under adverse conditions.
Despite these headwinds, the outlook suggests a period of recovery. Corporate credit quality is anticipated to recover sharply in FY28, assuming energy prices remain elevated but lower than the stressed 2026 scenario.
Banking Sector Remains Robust Amid Uncertainty
The banking sector is positioned well to weather the potential uncertainty. Lenders enter this period from a position of strength, supported by decade-high capital adequacy ratios and multi-year records of low non-performing loans.While credit losses may edge up to 0.9 percent over the next 12–24 months, S&P maintains that the overall asset quality across the sector is expected to remain healthy.
India’s Fundamentals Positioned to Absorb Downside
S&P Global Ratings concluded that, despite the visible downside risks, India’s underlying macroeconomic and financial fundamentals remain strong enough to absorb the shock. The agency does not foresee any immediate negative impact on the credit quality of the sovereign, rated corporates, or the banking system.The backdrop for this warning is the immediate volatility in global oil markets. Brent crude recently crossed $100 per barrel following the failure of talks between the US and Iran, alongside the US announcing a blockade of the Strait of Hormuz.
S&P’s base case accounts for the assumption that the conflict intensity will peak soon, and disruptions linked to the Strait of Hormuz are expected to ease during April, though continued supply-side stress may persist for months.
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