West Asia crisis dents manufacturing outlook in Q1, exports stay resilient: FICCI

Manufacturing activity is expected to witness a moderation in the April-June quarter of FY27 as geopolitical tensions arising from the West Asia crisis impacted business sentiment, according to a survey on manufacturing by industry body FICCI.

The 'Quarterly Survey on Manufacturing' released on Tuesday showed that while domestic fundamentals remained stable, manufacturers turned more cautious about production and demand during the first quarter of the current financial year.

According to the survey, about 77% of respondents reported either higher or unchanged production levels in the April-June quarter, down sharply from 93% recorded in the January-March quarter. Similarly, 77% of manufacturers reported higher or unchanged order books compared with 89% in the previous quarter, reflecting softer demand expectations.

Despite the moderation in sentiment, capacity utilisation remained largely stable at around 72%, unchanged from the previous survey, indicating that manufacturing activity has not yet seen a significant operational slowdown.

FICCI said the outlook for fresh investments over the next six months remains steady, although companies continue to face multiple headwinds while planning capacity expansion. Manufacturers cited geopolitical uncertainty, including tariffs and trade restrictions, demand uncertainty, labour shortages, raw material constraints, rising logistics costs and regulatory challenges as key hurdles.

Metal sector reported the highest average capacity utilisation

Among sectors, metal and metal products reported the highest average capacity utilisation at 80%, followed by chemicals, fertilisers and pharmaceuticals at 76%, machine tools at 75% and capital goods at 72%. Automotive and auto components operated at 65% capacity utilisation, while textiles, apparel and technical textiles stood at 69%.

The survey also highlighted an improvement in export sentiment. Around 74% of respondents reported that exports were either higher or unchanged compared with the corresponding quarter of the previous year, up from 61% in the preceding quarter. FICCI attributed the improvement to ongoing export diversification efforts by both the government and industry.

Hiring intentions, however, moderated. Around 35% of manufacturers plan to recruit additional workers over the next three months, compared with 41% in the previous survey.

Manufacturers faces mounting cost pressures

Manufacturers also reported mounting cost pressures during the quarter. Nearly 79% of respondents said production costs as a percentage of sales had increased, compared with 70% in the previous quarter. Higher raw material prices, elevated energy costs, currency depreciation and rising logistics and utility expenses were identified as the primary drivers.

The survey found that financing conditions remained largely stable, with the average borrowing cost reported at 8.9%. More than 89% of respondents said banks continued to provide adequate access to working capital and long-term funding.

Sector-wise, FICCI expects automotive and auto components, machine tools, and metal and metal products to post moderate-to-strong growth during the quarter, while capital goods, electronics, and textiles are likely to witness moderate growth. Chemicals, fertilisers and pharmaceuticals, along with miscellaneous manufacturing, are expected to record moderate-to-low growth.