War may trigger layered stress on margins, liquidity in fincl sector: EY

The ongoing geopolitical tensions, particularly the West Asia conflict, are expected to impact India’s financial services sector through deeper, layered effects over time, according to an analysis by EY.

The report stated that the road ahead for the financial sector will be shaped by the cumulative impact of sustained geopolitical and macroeconomic stress. Early signs of stress, such as elongated supply chains, rising cost pressures and tightening liquidity across value chains, are already visible.

EY stated: “While the second-order pressure could unfold in margin compression, deferred investments and stretched working-capital cycles, third-order stress will transmit via ecosystem payment strain and selective employment shocks, driving heightened cash-flow volatility across MSME and retail segments, with asset-quality risks emerging with a lag.”

According to the analysis, these pressures will directly affect companies as rising input costs, higher freight and insurance expenses and longer delivery timelines begin to impact profitability and cash flows. Third-order impacts, EY said, will be more systemic and could emerge through ecosystem-level stress, including payment delays, supplier strain and selective employment disruptions.