Manufacturing Sentiment Rebounds as Production and Demand Surge
FICCI survey reveals a sharp rise in manufacturing production, demand, and hiring intentions for Q2 FY27 despite rising cost pressures.
The Indian manufacturing sector has witnessed a significant resurgence in the second quarter of FY27, marked by a sharp uptick in production expectations and consumer demand. According to the latest FICCI Quarterly Survey on Manufacturing, the industry is showing strong signs of recovery, bolstered by stable domestic fundamentals and a shifting geopolitical landscape.
Production and Demand See Major Spikes
The survey highlights a dramatic shift in operational activity. Approximately 95 per cent of manufacturing respondents reported that their production levels were either higher or remained unchanged during Q2, a substantial jump from the 77 per cent recorded in the previous quarter.
This surge in output is closely mirrored by a strengthening demand outlook. Roughly 90 per cent of industry players reported higher or stable order levels, compared to 77 per cent in the first quarter. This indicates that the momentum in the manufacturing engine is gaining significant speed.
Capacity and Employment on the Rise
As factories ramp up operations, capacity utilisation has also seen a healthy boost. The average utilisation rate climbed to approximately 75 per cent, up from 72 per cent in the preceding survey period.
This expansion is also translating into job market optimism. Hiring intentions have improved, with 43 per cent of manufacturers planning to bring on additional workers over the next three months, compared to 35 per cent in the previous quarter.
Sectoral Performance Highlights
- Automotive & Auto Components: Recorded the strongest growth outlook among all surveyed sectors.
- Machine Tools, Metal & Metal Products: Expected to witness strong-to-moderate growth.
- Moderate Growth Sectors: Capital goods, glass, chemicals, electronics, electricals, and textiles are projected to maintain steady, moderate growth.
Exports and Investment Outlook
The outlook for international trade has also brightened. Around 80 per cent of respondents reported higher or unchanged export levels compared to the same period last year, up from 74 per cent in Q1. FICCI noted that government and industry efforts to diversify export markets appear to be delivering tangible results.
While the future investment outlook for the next six months remains steady, manufacturers are navigating a complex environment. Despite the positive momentum, several constraints to capacity expansion were flagged, including:
- Geopolitical uncertainty and trade restrictions
- Tariffs and logistics costs
- Raw material shortages and skill gaps
- Regulatory challenges
Rising Costs and Financing Trends
Despite the growth, the industry faces mounting financial pressure. Nearly 83 per cent of manufacturers reported an increase in production costs as a share of sales, rising from 79 per cent in the previous quarter. These rising costs are attributed to higher energy and raw material prices, currency depreciation, and increased utility and logistics expenses.
On the financing front, availability remains relatively comfortable. 90 per cent of respondents indicated they have sufficient bank funds for both working capital and long-term requirements. However, the cost of borrowing has seen a slight uptick, with the average interest rate paid by manufacturers rising to 9.1 per cent from 8.9 per cent in the previous quarter.