As the West Asian crisis broke out late February, Sunil JhunJhunWala, managing director and co-founder of Tiruppur-based Techno Sportswear Pvt. Ltd, an active wear brand, moved fast.
The disruption to the movement of ships through the Strait of Hormuz, he rightly surmised, would affect the supply of polyester filament yarn (PFY)–a raw material derived from crude oil—which he imports from China. As much as 15% of global crude oil needs and 50% of China’s consumption transit through this narrow passage connecting the Persian Gulf to the Arabian Sea.
He quickly dispatched a team to China to ensure continuous supply of raw material. He worked with his bankers to increase his working capital limits by 50%. This ensured that there was no disruption in the supply of raw material, though they came at a much higher cost.
“My average has risen by more than 40% and this includes PFY, dyes, chemicals and packaging materials,” he said.
But what JhunJhunWala did not anticipate was the second order impact.
No rotis, no labour
A shortage of liquefied petroleum gas (LPG) impacted food preparation at the hostels he maintained for 1,100 workers—90% of them migrants from other states. JhunJhunWala quickly set up electric boilers to facilitate cooking but they were not good enough to make rotis. Migrant workers began to leave and those already home for Holi stayed back. Today, due to the shortage, he operates his factory at 60% capacity.
“I have sent human resources teams to east and north India to recruit workers and am even willing to pay for their air tickets,” he said.
JhunJhunWala has not been able to fully pass on the higher costs, and his margins have taken a beating.
His challenges, in a way, are a microcosm of the problems India Inc is facing at large. Supplies have been restored but at a much higher cost than what was prevailing before the crisis started. The second-order impact—labour shortage, higher transportation costs, and a weaker rupee—has caused pain. In other words, companies currently face margin erosion more than revenue destruction.
An analysis of over 600 listed companies across 47 sectors (excluding banking, financial services, and insurance or BFSI, and oil and gas companies) by Crisil Intelligence found revenue growth in the first quarter of 2026-27 to be around 8%. This is slightly lower than the decadal average of about 9%. “Higher revenue is not coming from volume growth but more on account of cost-push factors,” said Miren Lodha, senior director, Crisil Intelligence.
But the news is grim when it comes to margins. Crisil Intelligence estimates a 100 basis points (bps) hit making margins the lowest in the last 12 quarters. It is grimmer for sectors dependent on crude oil and natural gas. “We expect their margins to decline by 300 bps,” Lodha added.
Cold kilns
Ask Manoj Arvadhya. A ceramic manufacturer and the president of the Morbi Ceramic Manufacturers’ Association, he has just endured a nightmare. Morbi, located 200 kilometers West of Ahmedabad in Gujarat, is the world’s second largest ceramic manufacturing cluster accounting for 70% of India’s production and 90% of its exports. It was shut down for 45 days due to the shortage of natural gas which entirely comes from West Asia. “We have lost ₹10,000 crore in revenue,” he said. The loss incurred by the 700 odd units in the cluster is estimated at ₹1,500 crore.
has been restored and on 1 May, ceramic floor and wall tiles plants started production. Vitrified, full body and premium tiles units had started operations earlier. Capacity utilization is still not at pre-war levels of 100% but the bigger challenge that worries Arvadhya is cost.
Price of gas, which accounts for 30% of Morbi’s production cost, has risen sharply. It is today at ₹73 per cubic foot as against ₹40 before the West Asian crisis. “Our costs have risen by 40% and we have managed to pass on the higher cost only by 20% or so. Our margins are hit,” he said.
“Considering the challenging situation, we have downgraded the ceramic sector,” said Abhishek Bhattacharya, senior director and head, large corporates group, India Ratings and Research.
Patchy pass-through
Aviation is another sector that has taken a big hit due to a combination of factors—route disruptions due to the closure of West Asian airspace, a sharp fall in leisure travel, and a significant increase in fuel costs.
For most other sectors, the margin impact has been comparatively less. How well they perform in the first quarter depends entirely on their pricing power and ability to pass on the higher cost to consumers.
In a recent report, Elara Capital stated that India Inc’s ability to pass through the higher cost is patchy. “While some companies with pricing power or shorter contract cycles are pushing for hikes, others are absorbing the higher cost to balance revenue versus volume risk,” it noted.
Let’s take the example of India’s sector. A short supply of key raw materials—titanium dioxide and styrene—has pushed up prices. Titanium dioxide prices have risen by over 20% while that of styrene has almost doubled. The cost impact for the sector is around 40% and companies have increased prices by about 10%, Elara Capital said. Their ability to pass only a small portion of the cost increase will see them registering a higher margin erosion.
Kansai Nerolac Paints reported an 8% sequential decline in profit to ₹112.27 crore in the fourth quarter of fiscal year 2026 (FY26). According to Pravin D. Chaudhari, the company’s managing director, supply chain disruptions are the key risk in the first quarter. Other risks, he added, include high commodity prices due to crude oil price surge and rupee depreciation.
In the fast-moving consumer goods (FMCG) sector, last year’s GST (goods and services tax) rate rationalization continued to drive positive demand momentum in both rural and urban India. However, input cost escalation is now forcing companies to pass on the cost to consumers. This threatens to offset the benefit of the rationalized GST rates.
“The demand environment remains stable. There are short-term volatilities which could be created by the geopolitical situation. But as of now, India stands out as a key emerging country with even the IMF forecasting 6.5% growth,” Priya Nair, chief executive officer (CEO) and managing director (MD), Hindustan Unilever Ltd, said during a post-earnings investor call on 30 April. “This, combined with the strength of our brands and our robust financial position, means we expect FY27 to be better than FY26.”
What about the cost impact? “We have stepped up, in parallel, the savings funnel, and equally, we have taken (up) pricing to the extent of 2% to 5% already. And as we navigate this, depending on how costs pan out, we’ll be taking further price increases as may be necessary,” she added.
Mohit Malhotra, the CEO of Dabur Ltd, said in an analyst call on 7 May that the company was effecting a 4% price increase across different parts of the business to mitigate the inflationary impact.
In the auto sector, at least two companies, Bajaj Auto and Mahindra and Mahindra, have said that challenges faced by suppliers due to the West Asian crisis led to lower-than-expected production of vehicles. Car makers expect growth of more than 8% in FY27 while two-wheeler companies expect single-digit growth. India’s largest carmaker, Maruti Suzuki, and Korean car major Hyundai Motor India registered a decline in profit in the March quarter, with rising costs playing a major role. Maruti’s profit fell 6% year-on-year to ₹3,659 crore while Hyundai’s profits fell 22% to ₹1,256 crore.
“We are seeing a short-term increase in commodity prices, which we think will settle down. But even as it settles down, we do expect some inflation impact over the next year,” Anish Shah, group chief executive, Mahindra and Mahindra, said.
Meanwhile, India’s top four cement companies have flagged pressure from rising input costs such as pet coke, higher freight expenses and increased polypropylene bag costs, which have pushed up overall operating expenses. Starting in April, cement makers implemented price hikes. “Now with demand getting a little softer and pricing pressure definitely higher, the industry is still under relentless pressure and is not able to pass on the price hike,” Vinod Bahety, CEO, Ambuja Cement, told investors.
The silver lining
Despite the gloom, few sectors have benefited from the crisis. Aluminium industry is one such beneficiary. Indian players are among the world’s lowest-cost aluminium producers due to fully backward integrated manufacturing facilities. The raw material is available locally so there is little cost push. On the other hand, Indian companies typically compete with West Asian players in the export market. “With West Asian aluminium output impacted, Indian players are seeing a 20% increase in prices,” said Crisil Intelligence’s Lodha.
Services companies, like in the information technology (IT) sector, have escaped any significant impact. However, IT exporters are battling different war—artificial intelligence (AI) related disruptions. Power, telecom, healthcare and pharmaceutical sectors are safe with no major impact as well.
India’s fertilizer sector was also lucky as the West Asian crisis coincided with its lean season. It was also the time when most units take their annual maintenance shutdown. “Most units took their break during this period. We will be meeting our production targets this year,” said an entrepreneur who runs a mid-sized fertilizer company clocking a revenue of ₹5,000 crore. His biggest concern is whether the government will bridge the gap between the higher cost of production and the selling price.
“We are taking at least a 400 bps hit in our margin on account of the higher cost of gas, ammonia, sulphur and a sharp depreciation in the value of the rupee,” he added.
Fuel double-whammy
Last week, fuel prices across India were raised by up to ₹3 per litre. Many therefore expect consumer sentiments to decline—the fuel hike will drive inflation up, eating into the disposable surplus consumers have.
“Increase in the price of fuel will be a double whammy for the industry,” said Lodha. “It will increase the freight cost and accelerate the slowdown in demand.”
Apart from margin pressure, India Inc will now have to worry about possible demand destruction.
Though a ceasefire is in place, the US and Iran are no where close to striking a peace deal which is necessary for traffic to resume normally in the Strait of Hormuz. Even if that happens tomorrow, it could take months before things return to normal. In the meantime, captains of the Indian industry have started praying to the rain gods. Insufficient monsoon, and a consequent fall in rural demand, is the last thing would like.
(Additional reporting by Dipali Banka from Mumbai, Ayaan Kartik from New Delhi, Nehal Chaliwala from Mumbai and Abhishek Law from New Delhi)