Indian manufacturing sentiment rebounds in Q2 FY27: FICCI report
Synopsis
India's factory floor is feeling more confident: a FICCI survey shows 95% of manufacturers held or grew output in Q2 FY27, capacity utilisation climbed to 75%, and hiring intentions jumped from 35% to 43%. The catch — production costs are rising too, and global uncertainty hasn't gone away.
Key Takeaways
95 per cent of respondents reported higher or unchanged production in Q2 FY27 , up from 77 per cent in Q1.
90 per cent reported stable or higher order books, also up from 77 per cent in the prior quarter.
Capacity utilisation improved to 75 per cent from 72 per cent in Q1 FY27.
43 per cent of manufacturers plan to hire additional workers in the next three months, versus 35 per cent in Q1.
Export resilience improved, with 80 per cent reporting stable or higher exports year-on-year.
Cost pressures intensified — 83 per cent flagged higher production costs, and the average interest rate rose to 9.1 per cent .
Indian manufacturing sentiment improved significantly in the second quarter of FY27, with stronger expectations across production, demand, exports, and hiring, according to a survey-based report by the Federation of Indian Chambers of Commerce and Industry (FICCI). The findings suggest a recovery in business confidence despite persistent global geopolitical headwinds.
Production and Demand Conditions Improve
Around 95 per cent of respondents reported higher or unchanged production levels in Q2 FY27, a sharp rise from 77 per cent in the preceding quarter. Demand conditions mirrored this trend, with 90 per cent of manufacturers reporting higher or stable order books, up from 77 per cent in Q1.
Capacity utilisation also edged up to approximately 75 per cent in Q2, from 72 per cent in the previous survey, signalling improved use of existing manufacturing assets — a metric closely watched by policymakers as a precursor to fresh capital expenditure.
Export Sentiment Strengthens
About 80 per cent of respondents reported higher or unchanged exports compared with the year-earlier period, against 74 per cent in the previous quarter. FICCI attributed part of this improvement to export diversification efforts by both the government and industry, at a time when global trade routes are being redrawn under tariff and geopolitical pressures.
Hiring Plans Pick Up
Manufacturers reported stronger near-term recruitment intentions, with 43 per cent of respondents indicating plans to hire additional workers over the next three months, compared with 35 per cent in Q1 FY27. The automotive and auto-components sector showed the strongest growth outlook, while machine tools and metal products were expected to record strong-to-moderate growth. Capital goods, chemicals, glass, electronics, electrical equipment, and textiles were projected to post moderate growth.
Challenges: Costs, Rates and Structural Headwinds
Despite the upbeat headline numbers, cost pressures intensified. Nearly 83 per cent of respondents reported higher production costs as a share of sales, up from 79 per cent in Q1. The average interest rate paid by manufacturers rose to 9.1 per cent from 8.9 per cent in the previous quarter, even as 90 per cent of respondents reported adequate access to bank funding.
Respondents continued to flag geopolitical tensions, tariffs, trade restrictions, demand uncertainty, skill shortages, raw material constraints, logistics costs, and regulatory hurdles as key barriers to capacity expansion. The industry's investment outlook for the next six months remained broadly stable, suggesting caution alongside optimism.
What to Watch
The rebound in capacity utilisation toward the 75 per cent mark is significant — historically, sustained utilisation above 75–80 per cent has preceded fresh private investment cycles in India. If hiring intentions convert to actual recruitment and order books hold, Q3 FY27 data could confirm whether this is a durable revival or a seasonal uptick.
Point of View
But the 83 per cent reporting cost-as-share-of-sales pressure is the figure that deserves equal attention. A sentiment rally built on compressed margins is fragile — if demand softens even marginally, producers absorbing higher input and financing costs will pull back fast. The jump in hiring intentions to 43 per cent is the most meaningful leading indicator here, but intentions and outcomes diverge often in Indian manufacturing surveys. The real test comes in Q3, when the order-book-to-hiring conversion rate will reveal whether this is genuine momentum or a data-point that flatters a mixed reality.
NationPress
6 Oct 2026
Frequently Asked Questions
What does the FICCI manufacturing sentiment report for Q2 FY27 show?
The FICCI survey shows a broad-based recovery in Indian manufacturing sentiment in Q2 FY27, with 95 per cent of firms reporting stable or higher production, 90 per cent citing stable or growing order books, and 43 per cent planning new hires in the next three months. Capacity utilisation also rose to 75 per cent from 72 per cent in Q1.
Which sectors have the strongest growth outlook according to the report?
The automotive and auto-components sector showed the strongest growth outlook in Q2 FY27. Machine tools and metal products were expected to record strong-to-moderate growth, while capital goods, chemicals, electronics, electrical equipment, and textiles were projected to see moderate growth.
What challenges are Indian manufacturers still facing?
Despite improved sentiment, manufacturers flagged rising production costs — with 83 per cent reporting higher costs as a share of sales — alongside geopolitical tensions, tariffs, trade restrictions, skill shortages, raw material constraints, logistics costs, and regulatory hurdles as key barriers to expansion.
How has export performance changed for Indian manufacturers?
About 80 per cent of respondents reported higher or unchanged exports compared with the year-earlier period in Q2 FY27, up from 74 per cent in Q1. FICCI attributed the improvement partly to government and industry-led export diversification efforts.
What is the significance of the rise in capacity utilisation to 75 per cent?
Capacity utilisation reaching 75 per cent in Q2 FY27, up from 72 per cent in Q1, is a closely watched threshold. Sustained utilisation above 75–80 per cent has historically preceded fresh rounds of private capital investment in India, making this a key indicator to monitor in the coming quarters.
