Indian Corporates Show Unprecedented Strength in Credit Quality

The financial landscape of India’s corporate sector is experiencing a significant transformation, marking the strongest credit quality in approximately 15 years. Analysts attribute this remarkable shift to improved balance sheets, featuring enhanced leverage, profitability, and liquidity. The current corporate credit environment is a stark contrast to the period following the 2008 global financial crisis, when companies were burdened with heavy debts and aggressive expansion strategies.

Recent reports from rating agencies, including CRISIL, highlight a structural improvement in corporate financial health. The average debt-to-equity ratio for listed Indian companies has reportedly declined from around 0.62x in fiscal year 2015 (FY15) to approximately 0.27x in FY25. This represents a significant reduction of over 50%, indicating a fundamental recalibration of capital structures within the Indian corporate landscape.

Deleveraging and Cash Reserves Drive Stability

Parallel to this reduction in leverage, Indian corporates have significantly bolstered their cash reserves. Public financial data indicates total cash holdings soared to nearly ₹5 trillion by March 2025, raising cash-to-debt ratios to about 46%, up from around 32% in 2016. This liquidity provides companies with greater flexibility to meet obligations, manage refinancing needs, and explore new investment opportunities.

One of the most telling indicators of the improved corporate fundamentals is the interest-coverage ratio, which measures a company’s ability to pay interest on outstanding debt. Public data suggests that this ratio reached approximately 5.8x in FY25, a 12-quarter high, while private-sector firms reported even higher ratios near 6.78x. Analysts interpret these ratios as evidence of enhanced operational efficiency and cash-flow generation, bolstering resilience against interest rate fluctuations.

According to rating agency transition reports for the first half of FY26, the corporate credit landscape is marked by a favorable upgrade-to-downgrade ratio, with 214 upgrades compared to just 75 downgrades. This credit ratio of approximately 2.9x is among the highest recorded for the initial half of any fiscal year, reflecting a trend towards stronger credit stability.

Sector-Specific Drivers of Credit Improvement

Analysts have noted that infrastructure-linked sectors have accounted for nearly 45% of rating upgrades in recent periods. This surge is largely attributed to multi-year public capital expenditures, regulated business models, and enhanced revenue visibility. Improvements in the manufacturing and services sectors have also contributed to this upward trend, driven by a recovery in domestic demand and operational efficiencies.

Public financial analyses indicate that sectors such as healthcare, information technology, and hospitality have reported significant improvements in revenue growth and margin stability. Conversely, credit deterioration has been most pronounced in sectors reliant on external exports, such as diamond processing and textiles, which have faced challenges due to tariff disruptions.

While sector-specific risks do exist, the overall corporate credit landscape in India has not exhibited widespread deterioration. Analysts emphasize that weaknesses appear confined to identifiable segments rather than representing systemic issues.

In terms of profitability, data for Q4 FY25 revealed operating margins of approximately 15.3%, a year-on-year increase of over 100 basis points. This improvement is attributed to moderating commodity prices, improved supply-chain stability, and stronger pricing power in various industries. Public analyses suggest that these gains have occurred alongside elevated margins, even during periods of rising interest costs.

A noteworthy departure from historical trends is the shift in capital expenditure (capex) funding. In FY25, corporate debt growth was around 2.9% despite heightened capex activity. Analysts attribute this shift to increased reliance on internal accruals, equity issuance, and improved profitability, moving away from debt-funded expansion models that characterized earlier investment cycles.

According to CRISIL, Indian corporates may require between ₹115–125 lakh crore in debt from FY26 to FY30 to support ongoing capex pipelines. Analysts believe these funding needs can be met without undue strain on the banking or bond markets, thanks to a stable liquidity environment.

The Reserve Bank of India’s (RBI) monetary policy reports have revised FY26 inflation projections to approximately 2.6%, below the medium-term target of 4%. This moderation is expected to correlate with reduced borrowing cost volatility and better earnings stability. GDP growth projections for FY26 hover around 6.8%, supported by a robust domestic consumption environment.

Access to Investment-Grade Corporate Bonds

For individual investors, platforms like Altifi are democratizing access to investment-grade corporate bonds by lowering minimum investments from traditional ₹10 lakh to just ₹10,000. This move has attracted nearly 59,000 registered users, collectively investing over ₹1,220 crore in bonds. Altifi offers transparent access to AAA-rated, AA-rated, and A-rated corporate bonds, enabling investors to build diversified portfolios across various maturities and issuers.

Despite the positive trends, analysts caution that risks remain. Global trade tensions, financial instability, and geopolitical shifts could influence corporate earnings, particularly in export-driven sectors. Analysts also highlight that rising household debt-to-GDP levels, currently around 42%, could impact discretionary consumption and, subsequently, earnings in consumer-facing industries.

The current liquidity environment is supportive, but analysts warn that tightening credit conditions resulting from macroeconomic shocks could increase refinancing costs for lower-rated issuers.

In conclusion, the Indian corporate credit quality is at its strongest in nearly 15 years, driven by improved leverage ratios, liquidity levels, and profitability indicators. These developments offer a more stable backdrop for investment-grade corporate debt, although understanding corporate fundamentals and sectoral trends remains essential for evaluating risks and opportunities within the fixed-income landscape as the market continues to evolve.