India Inc May Have To Bear 200 Bps Loss In Profit In FY27 Due To Elevated Crude Prices
· Free Press Journal
Even as the war in West Asia appears to be winding down amid hopes of a peace agreement, Indian companies may continue to face its impact for longer.
The Iran war could reduce the profitability of Indian companies by nearly 200 basis points, according to a report by CRISIL cited by The Economic Times.
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The rating agency conducted a stress test of 34 sectors accounting for around 65 percent of its rated corporate debt.
The agency assumed that crude oil prices could average at $110 per barrel compared to its earlier base-case assumption of $95 per barrel.
The report said rising crude oil prices are expected to increase costs for businesses across several sectors.
Higher fuel, transportation, and raw material expenses may hurt company margins if the conflict continues for a longer period.
Citi Cuts Year-End Target For Nifty To 27,000 From 28,500 As War Spirals Into Energy CrisisCRISIL estimated that if crude oil prices remain around current elevated levels, the operating profit margins of India Inc could decline by nearly 2 percentage points.
This would mainly affect industries that are heavily dependent on oil and energy costs.
Sectors such as aviation, chemicals, paints, tyres, logistics, cement, and consumer goods are expected to face the biggest pressure because of rising input costs.
Airline companies are particularly vulnerable since aviation turbine fuel forms a major part of operational expenses.
The report noted that companies may not be able to fully pass on higher costs to consumers because demand conditions remain sensitive. As a result, businesses could face pressure on profitability.
According to CRISIL, crude oil prices have risen sharply after tensions escalated in West Asia and disruptions affected global energy supply routes.
Concerns over supply shortages have pushed oil prices higher in international markets.
The report also warned that sustained high oil prices could increase inflationary pressure in India. This may affect consumer spending and economic growth if the situation worsens further.