Steady GDP growth and rate cuts in 2025 to boost corporate credit access in FY26: Fitch
13 Jan 2025

India’s steady economic growth, an improved banking sector, and anticipated interest rate cuts in 2025 are set to enhance credit access for corporates in the financial year 2025-26 (FY26), according to Fitch Ratings. The agency predicts better credit metrics for Indian corporates in FY26, fueled by higher EBITDA (earnings before interest, taxes, depreciation, and amortization) margins despite increased capital expenditure.
Fitch warned that potential risks could emerge from significant energy price hikes due to geopolitical uncertainties, sustained depreciation of the Indian rupee, or adverse trade policies that may hurt exports.
“We anticipate India’s steady GDP growth outlook, an improved banking sector, and expected interest rate reductions in 2025 will collectively support corporate credit access in FY26,” Fitch stated in its latest report, India Corporates Credit Trends.
The Reserve Bank of India (RBI) is widely expected to reduce interest rates in 2025, following its recent decision to lower the cash reserve ratio (CRR) by 50 basis points. This liquidity boost is seen as a precursor to further easing.
Sector-wise outlook for FY26
Fitch estimates sales growth for Fitch-rated corporates to remain modest, at 1-2% in FY26 (compared to 1.5% in FY25). This reflects declining prices in the oil and gas sectors while other industries are expected to show varying levels of growth.
- Infrastructure and industrial demand: With a projected GDP growth of 6.5% and strong infrastructure spending, demand for cement, electricity, petroleum products, steel, and engineering and construction (E&C) companies will likely remain robust.
- Oil and gas: Sales in oil and gas production and oil marketing companies (OMCs) are expected to decline slightly as lower prices offset volume growth.
- IT services: IT companies may experience mid-single-digit sales growth as overseas clients curb discretionary spending amid slower global economic growth.
- Automotive sector: Growth in sales for auto suppliers is expected to moderate due to slower domestic volume growth and lower exports.
- Travel and tourism: The recovery in travel and tourism demand will continue, albeit at a slower pace.
- Chemical sector: Chemical companies are likely to face pricing pressures due to global oversupply.
- Telecom and pharmaceuticals: Telecom firms will benefit from tariff hikes, while the pharmaceutical sector is expected to maintain steady growth, driven by its non-discretionary nature and favorable industry trends.
Fitch’s analysis underscores the potential for growth across various sectors in FY26, while highlighting external risks that could impact the overall credit landscape.
FAQs about the steady GDP growth and rate cuts in 2025 to boost corporate credit access in FY26.
1. What are the main factors supporting corporate credit access in FY26?
India’s steady GDP growth, improved financial health of the banking sector, and expected interest rate cuts in 2025 are the key factors likely to enhance corporate credit access in FY26.
2. What risks could impact India’s corporate credit growth in FY26?
Key risks include significant increases in energy prices due to geopolitical uncertainties, sustained depreciation of the Indian rupee, and adverse trade protectionist measures that could dampen exports.
3. What is the expected GDP growth for India in FY26?
Fitch forecasts India’s GDP growth at 6.5% in FY26, driven by strong infrastructure spending and robust demand across multiple sectors.
4. How is the Reserve Bank of India expected to contribute to economic growth?
The RBI is anticipated to cut interest rates in 2025, following its recent move to lower the cash reserve ratio (CRR) by 50 basis points. These measures aim to ease liquidity and support economic growth.
5. Which sectors are expected to perform well in FY26?
- Infrastructure-related sectors: Cement, electricity, petroleum products, steel, and engineering and construction companies are expected to benefit from strong demand.
- Telecom: Revenue growth will be supported by tariff hikes.
- Pharmaceuticals: Growth will be driven by the sector's non-discretionary nature and favorable trends.
6. What challenges are expected in the oil and gas sector?
Sales in oil and gas production and oil marketing companies are likely to decline slightly as lower prices counterbalance a modest volume increase.
7. What is the outlook for the IT services sector?
IT service companies are expected to see mid-single-digit growth due to reduced discretionary spending by overseas clients amid slower economic growth in key markets.
8. How will the auto sector perform in FY26?
Sales growth for auto suppliers is expected to moderate to mid-single digits due to slower domestic volume growth and reduced exports.
9. What trends are expected in the travel and tourism industry?
Demand recovery is expected to continue, but at a moderate pace, as the sector gradually rebounds from past disruptions.
10. How is the chemical industry expected to fare?
Global oversupply is likely to put downward pressure on prices, affecting revenue growth for chemical companies.
11. How does Fitch predict corporate sales growth in FY26?
Fitch estimates a modest aggregate sales growth of 1-2% for Fitch-rated corporates in FY26, reflecting sector-specific variations and price dynamics.
12. What are the potential benefits of rate cuts in 2025 for corporates?
Rate cuts are expected to reduce borrowing costs, improve liquidity, and enhance credit availability for corporates, fostering investment and growth.