Large Indian corporates have significantly strengthened their resilience to economic volatility over the past decade through strategies such as premiumisation, specialisation, modular capital expenditure (capex) and diversification, while small and medium enterprises (SMEs) continue to face persistent financial stress, according to
a study by India Ratings and Research (Ind-Ra).
The rating agency analysed the latest quarterly results of around 3,400 listed non-financial companies and found a widening divergence between the financial health of large corporates and SMEs, despite both segments facing similar challenges, including weak domestic demand, tariff uncertainties, geopolitical disruptions and slowing economic growth.
"Large corporates have coped with volatility through strategic levers such as premiumisation in consumer-focused sectors, specialisation in the infrastructure sector, modularisation of capex in investment-heavy sectors, and diversification in export-oriented sectors. SMEs, lacking this nimbleness, continue to see rising stress, on the other hand," says Abhishek Bhattacharya, head of large corporate ratings at Ind-Ra.
The study defines large corporates as companies with annual turnover exceeding ₹5 billion. Financial stress has been measured using the proportion of companies whose quarterly interest coverage ratio (ICR) falls below one time.
Stress Levels Diverge Sharply
According to Ind-Ra, the proportion of stressed large corporates has fallen significantly over the past decade. The stress ratio for large companies declined to 7% in March 2026 from 14% in March 2016, despite peaking at 29% during the COVID-19 pandemic.
In contrast, SMEs have shown little improvement. Their stress ratio stood at 27% in March 2026, unchanged from a decade ago. During the pandemic, the figure surged to 48%, highlighting the vulnerability of smaller businesses to economic shocks.
The findings suggest that while large corporates have emerged stronger from successive disruptions, many SMEs continue to struggle with weak profitability, rising costs and limited ability to adapt to changing market conditions.
Premiumisation Emerges as a Key Strategy
Ind-Ra says premiumisation has become a critical survival strategy in consumer-facing sectors, particularly amid what it describes as a continuing K-shaped recovery in the economy.
The report notes that suppliers dependent on entry-level motorcycles and small passenger vehicles have been among the worst affected. Demand for low-end motorcycles has fallen by around 10% over the past three years, while demand for smaller passenger vehicles has declined by about 20%, squeezing margins for many small auto-component manufacturers.
Large automotive suppliers, however, have shifted their focus towards premium sport utility vehicles (SUVs), electric scooters and precision-engineering businesses linked to global automobile manufacturers.
A similar trend is visible in the real estate sector, where major developers have increasingly moved away from affordable housing towards premium residential projects, high-end retail developments and hospitality ventures.
Consumer goods companies have also adapted rapidly. Quick-commerce channels now account for 5%-6% of revenues for leading fast-moving consumer goods (FMCG) companies, compared with less than 1% in FY21-22.
According to the report, premium product offerings have helped offset higher platform costs and improve margins.
The trend is also evident in consumer durables, luggage and electrical goods, where companies targeting affluent consumers have reported stronger earnings growth than mass-market players.
Specialisation Driving Infrastructure Winners
In sectors linked to government spending, particularly infrastructure, Ind-Ra identifies specialisation as a key differentiator.
The report notes that relatively commoditised sectors such as cement and engineering-procurement-construction (EPC) have experienced significant margin pressure. Operating margins of market leaders in these sectors have fallen from high-teen levels to single digits over the past five years.
Stress ratios in cement and EPC now exceed 20%, reflecting intense competition and weakening pricing power.
By contrast, specialised businesses such as capital goods manufacturers, mine developers and speciality steel producers have maintained stronger profitability.
Transmission equipment manufacturers, for example, have seen their order books expand five-fold over the past three years, while operating margins have doubled. Among the nearly 150 large corporates operating in this segment, the stress ratio stood at just 4% in March 2026.
According to Ind-Ra, specialised execution capabilities, technological expertise and stringent qualification requirements are enabling such companies to command premium pricing and sustain profitability.
Modular Capex Reduces Risk
The report also highlights the growing adoption of modular capital-investment strategies.
Investment-intensive sectors such as renewable energy, semiconductors, data centres, warehousing and healthcare are increasingly adopting phased investment approaches that allow businesses to respond more quickly to changing demand and supply-chain conditions.
The contract development and manufacturing organisation (CDMO) sector exemplifies this approach, maintaining operating margins above 30% despite global uncertainties.
Within the chemicals industry, speciality manufacturers that stagger investments around specific customer requirements have managed to preserve profitability, despite tariffs, inventory corrections and geopolitical disruptions.
In contrast, companies pursuing large-scale commodity projects and long-gestation backward-integration investments are facing increasing liquidity pressures.
The textiles sector offers another example. Large garment exporters with shorter investment cycles and customer-focused business models have remained relatively healthy, with a stress ratio of just 9%. SMEs in the sector, however, reported a stress ratio of 31% as of March 2026.
Diversification beyond Market Expansion
According to Ind-Ra, diversification has evolved beyond simple market expansion and now includes supply-chain resilience.
The report highlights how major shrimp exporters shifted their focus to European, Chinese and Russian markets after facing tariff-related challenges in the US. Companies that invested in food-safety certifications and regional trade relationships were able to expand margins despite broader sectoral pressures.
Similarly, chemicals companies have reduced dependence on single suppliers and adopted more diversified sourcing strategies following disruptions such as the Red Sea crisis in 2023.
This shift towards what Ind-Ra describes as 'just-in-case' supply chains is helping large corporates maintain operational stability despite increasing geopolitical and trade-related risks.
Strategic Agility Becomes Critical
The report concludes that strategic adaptability has become one of the most important determinants of corporate performance in an increasingly uncertain economic environment.
Whether through premiumisation, specialisation, modular investment models or diversified supply chains, large corporates have demonstrated a greater ability to adjust to changing market conditions and absorb external shocks.
For SMEs, however, the challenge remains substantial. With fewer resources, lower bargaining power and limited operational flexibility, many smaller businesses continue to face elevated financial stress despite the broader recovery in corporate India.
According to Ind-Ra, the widening gap between large corporates and SMEs underscores the growing importance of strategic agility as India's economic landscape becomes increasingly complex and volatile.
