Power Sector Drives Rating Upgrades in FY2026 Amid Strong Credit Improvement: ICRA

The power sector emerged as a key contributor to rating upgrades in FY2026, supported by improved project execution, stable operational performance, and strengthening parent profiles, according to ICRA.

The sector recorded a notable improvement in its credit ratio, which rose to 5.2 in FY2026, up from 3.4 in FY2025 and 2.9 in FY2024. This trend reflects a sustained increase in rating upgrades relative to downgrades, underpinned by easing project risks, stabilised operations of commissioned assets, and consistent cash flow generation.

ICRA noted that rating upgrades were largely driven by timely project completions, a proven track record of stable operational performance, and enhanced credit strength of parent entities. The sector also benefited from continued policy support, infrastructure expansion, and capacity additions, particularly in renewable energy.

Financial strengthening through deleveraging, equity infusion, and scheduled debt amortisation further reinforced credit quality across the sector.

The power sector was among the leading contributors to overall rating upgrades during the year, alongside real estate, hotels, auto components, and roads, all of which collectively supported the broader upgrade momentum.

At an aggregate level, credit quality across sectors remained robust. The overall credit ratio improved to 3.1 times in FY2026, compared to 2.0 times in FY2025 and 2.1 times in FY2024. During the year, 388 upgrades were recorded against 124 downgrades, highlighting a favourable credit environment.

Default rates remained low at 0.4%, indicating resilient corporate balance sheets and stable operating conditions across industries.

The power sector, in particular, has demonstrated consistent improvement in credit metrics over recent years, reflecting strengthening fundamentals and a reduction in risk profiles.

Commenting on the macroeconomic outlook, K. Ravichandran stated that escalating geopolitical tensions in West Asia since late February 2026 have reintroduced risks to India’s energy and food security. He cautioned that any prolonged disruption, especially in the Strait of Hormuz, could impact the supply of oil, gas, and fertilisers, potentially triggering global supply shocks.

He further noted that while increased subsidies may help cushion rising commodity prices, they could exert pressure on government finances. Corporates may also face demand moderation and margin pressures amid inflationary trends.

Looking ahead, the power sector is expected to remain on a stable growth trajectory, supported by sustained demand, ongoing capacity additions, and policy backing. However, exposure to global energy price volatility and geopolitical developments will remain key monitorables.