India Inc resilient to tariffs, to invest $50 bn despite global headwinds

Indian enterprises are well positioned to handle the impact of tariffs and geopolitical tensions, Moody's Investors Service and its local arm Icra Ratings said on Wednesday.

India Inc, however, will be "measured" in making investment decisions in the new fiscal because of the external headwinds, they said.

"Indian non-financial companies are not directly affected by US import tariffs due to their focus on domestic consumption and low dependence on exports," a statement from Moody's said.

It further noted that government initiatives to boost private consumption, expand manufacturing capacity and increase infrastructure spending will help offset the weakening outlook for global demand.

"Private capex to remain measured amid external headwinds," it said.

Indian corporates will continue investing in new capacity to cater to the sustained growth in domestic consumption, and Moody's estimated that non-financial companies rated by it will spend around USD 50 billion annually in capital spending over the next two years.

It said most companies will spend from internal accruals, and the average portfolio leverage will continue to remain at 3 times the operating profit.

Moody's Ratings managing director Vikash Halan said India's manufacturing growth will be constrained by challenges such as inadequacy of skilled labor, evolving logistics infrastructure and complex land and labor laws.

Select auto parts categories, cut and polished diamonds, and seafood exports have notable exposure to the US market and may face headwinds from demand moderation or rising competition, it said, adding that the textiles sector is expected to benefit from its comparative advantage over China.

Geopolitical tensions, particularly the India-Pakistan conflict, may weigh on near-term demand for travel and hospitality services. Nonetheless, India's overall exposure to these risks remains moderate, it said.

Icra's chief rating officer K Ravichandran said after being muted in FY25, urban consumption is expected to recover in FY26 supported by income tax relief, further rate cuts, and easing food inflation, and the same will benefit automobiles, consumer goods, and services sectors.

Meanwhile, on the infrastructure creation front, Icra forecasted a slowdown in road construction activity in the near-term, whereas other segments like ports and data centers will continue to witness significant investments, benefiting from solid government support, healthy capital outlays and a large pipeline of projects.

The rating agencies said the country needs massive investments to meet its 2070 net-zero pledge, explaining that the country is grappling with the trilemma of energy security, affordability and transition.

Over the next decade, these investments are projected to constitute 2 per cent of real GDP for the electricity value chain, encompassing power generation, storage, transmission and distribution, it said.