Manufacturing Sentiment Rebounds
Indian manufacturers have shown a marked improvement in confidence regarding production and demand for the July-September quarter (Q2 FY27). According to the Federation of Indian Chambers of Commerce and Industry (FICCI) latest quarterly survey, nearly 95 percent of respondents reported higher or unchanged production levels. This is a significant jump from the 77 percent recorded in the previous April-June quarter.
The recovery in sentiment appears to be driven by stable domestic fundamentals, which have helped offset the impact of the prevailing geopolitical situation. Order books have also strengthened, with around 90 percent of respondents reporting higher or unchanged orders in Q2 FY27, compared to 77 percent in the prior quarter.
Capacity Utilization Rises Across Sectors
The improvement in activity is reflected in higher utilization of existing production capacity. The average manufacturing capacity utilization rose to approximately 75.5 percent in Q2, up from 72 percent in the previous survey period.
Sector-wise performance varied, with glass manufacturers reporting the highest average capacity utilization at 88 percent. This was followed by miscellaneous manufacturing at 81 percent and metals and metal products at 78 percent. Capital goods recorded a utilization rate of 76 percent, while textiles stood at 75 percent. The automobile and auto components sector reported a utilization rate of 73 percent.
Employment and Investment Outlook
While the investment outlook remained relatively steady, employment plans have become more positive. Around 43 percent of respondents indicated plans to hire additional workers over the next three months, an increase from 35 percent in the previous quarter. The strongest hiring intentions were observed in the automobile, glass, and machine tool sectors.
However, manufacturers cited several constraints to expanding capacity, including geopolitical uncertainty, tariffs, trade restrictions, demand uncertainty, skill shortages, raw material availability, logistics costs, and regulatory challenges.
Cost Pressures and Export Trends
Despite the recovery in volume, cost pressures have intensified. Nearly 83 percent of manufacturers reported an increase in production costs as a share of sales, up from 79 percent in Q1. The primary drivers for this increase were higher raw material and energy costs, rupee depreciation, and rising logistics and utility expenses.
Export sentiment also strengthened, with around 80 percent of respondents reporting exports to be higher or unchanged compared to the same period last year. FICCI attributed part of this improvement to export-diversification efforts by both the government and industry.
Financially, manufacturers reported paying an average interest rate of 9.1 percent, up from 8.9 percent in the previous quarter. Nevertheless, 90 percent of respondents stated that adequate bank funding was available for both working capital and long-term requirements.
Among major sectors, automobiles and auto components had the strongest growth outlook, with FICCI categorizing expected growth as "strong," implying a range of 10-20 percent.