Manufacturing Outlook Softens In Q1 FY27 Despite Stable Fundamentals: FICCI Survey

New Delhi, Jun 30 (KNN) Manufacturing sector sentiment moderated in the first quarter of FY 2026-27 compared to the previous quarter, reflecting the potential impact of the West Asia crisis even as stable domestic fundamentals helped cushion the overall outlook, according to the 70th edition of FICCI's Quarterly Survey on Manufacturing (QSM)

The survey found that approximately 77 per cent of respondents reported higher or stable production levels in Q1 FY2026-27, down from 93 per cent in Q4 FY2025-26. A similar moderation was visible in demand, with 77 per cent of respondents reporting higher or stable orders in the latest quarter compared to 89 per cent previously.

The survey assessed performance and sentiment across eight major manufacturing sectors — Automotive and Auto Components, Capital Goods, Chemicals, Fertilizers and Pharmaceuticals, Electronics and Electricals, Machine Tools, Metal and Metal Products, Textiles, Apparels and Technical Textiles, and Miscellaneous — drawing responses from large and small and medium enterprise (SME) manufacturing units with a combined annual turnover exceeding Rs 4 lakh crore.

Capacity Utilisation Holds Steady

Despite the moderated sentiment, capacity utilisation showed no significant decline from the previous quarter, holding at approximately 72 per cent. The future investment outlook remained steady for the next six months. 

Respondents cited the current geopolitical situation — including tariffs, trade restrictions, and demand uncertainty — alongside operational challenges such as labour availability, raw material shortages, rising logistics costs, and regulatory hurdles as key constraints on capacity expansion.

Metal and Metal Products recorded the highest capacity utilisation at 80 per cent, followed by Chemicals, Fertilizers and Pharmaceuticals at 76 per cent. Automotive and Auto Components reported the lowest utilisation at 65 per cent.

Inventories, Exports and Hiring

Around 85 per cent of respondents reported higher or stable inventory levels in Q1 FY2026-27, broadly consistent with 86 per cent in the previous quarter. 

Exports showed improvement, with 74 per cent of respondents reporting higher or stable export levels compared to the same quarter a year earlier, up from 61 per cent in Q4 FY2025-26 — a trend FICCI attributed to ongoing export diversification efforts by government and industry.

Hiring intentions softened, with 35 per cent of respondents planning to add workforce in the next three months, down from 41 per cent in the previous quarter.

Costs and Credit Access

The average interest rate paid by manufacturers stood at 8.9 per cent, broadly unchanged from the previous quarter, with over 89 per cent of respondents reporting sufficient availability of bank funds for working capital or long-term financing needs.

Production costs, however, remained elevated. Nearly 79 per cent of respondents reported an increase in production costs as a share of sales, up from 70 per cent in the previous quarter, driven by higher raw material and energy costs, currency depreciation, and increased logistics and utility expenses.

Sectoral Outlook

Automotive and Auto Components is expected to see moderate to strong growth in Q1 FY2026-27, while Machine Tools and Metal and Metal Products are projected to post strong to moderate growth. 

Capital Goods, Electronics and Electricals, and Textiles, Apparels and Technical Textiles are expected to register moderate growth, while Chemicals, Fertilizers and Pharmaceuticals and the Miscellaneous category are projected to grow at a moderate to low pace.

On workforce availability, 63 per cent of respondents reported no significant labour shortages at their facilities, while the remaining 37 per cent pointed to a continued shortage of skilled workers in their sectors, underscoring the need for stepped-up government and industry efforts on skilling.

(KNN Bureau)