Manufacturing sentiment steady in Q3; Auto, Cap Goods, Metals bullish

FICCI’s latest quarterly survey on Manufacturing indicates a pause in the steady improvement seen in optimism on quarterly production levels.

The percentage of respondents expecting production in the current quarter (Oct-Dec) to be higher than last quarter fell to 47% from 50% three months ago. It is among the lowest scores in the last two-and-a-half years.

At the same time, the percentage of respondents reporting low production has also come down to 15% in Q-3 quarter from 18% in Q-2 (July-September 2017-18) quarter.

“This less optimistic outlook for manufacturing in third quarter of current fiscal is reported to be due to factors like rupee appreciation impacting exports, issues with regard to GST implementation and subdued demand in several sectors,” it said.

High growth is expected in Auto, Capital Goods, Metal and Metal Products for Q-3 2017-18.

Sector Growth Expectation
Cement and Ceramics Low
Food Products Low
Textiles and Technical Textiles Low
Leather & Footwear Low
Chemicals & Pharmaceuticals Moderate
Electronics & Electricals Moderate
Machine Tools Moderate
Textile Machinery Moderate
Auto Strong
Capital Goods Strong
Metal and Metal Products Strong

Moderate growth is expected in Chemicals and Pharmaceuticals, Electronics & Electricals, Machine Tools and Textile Machinery in Q-3 2017-18 whereas low growth is expected in sectors like Cement and Ceramics, Food Products, Leather & Footwear and Textiles & Technical Textiles.

About 42% respondents in October-December are expecting higher number of orders as against 47% of Q2, it added.

Responses have been drawn from over 310 manufacturing units from both large and SME segments with a combined annual turnover of over ₹3 lac crore.

The survey covered twelve major sectors namely auto, capital goods, cement and ceramics, chemicals and pharmaceuticals, electronics & electricals, food products, and textiles.

Capacity Addition & Utilization

The survey found that capacity utilization in manufacturing remains low.

The average capacity utilization for the manufacturing sector is about 75% for Q-2 2017-18 as reported in the survey which is similar to that of Q-1 2017-18.

As was the case in Q-1 2017-18, the future investment outlook remains pessimistic as 73% respondents in Q-2 2017-18 reported that they are not planning any capacity additions atleast for the next six months.

Increasing imports, excess capacities, lower domestic demand from industrial sectors, high raw material cost, high interest rates are some of the major constraints which are affecting expansion plans of the respondents.

Some respondents also reported that they are waiting for the market to settle down after the GST.

Overall, in some sectors (like chemicals, food products, textiles, textiles machinery, leather & footwear, metal & metal products, cement and machine tools) average capacity utilization has either remained same or declined in Q-2 of 2017-18.

On the other hand, sectors including auto, paper and electronics & electricals have registered a rise in the average capacity utilisation over the same period, FICCI said.


Inventory situation hasn’t changed much. 90% of the participants in Q-2 (July- September 2017-18) as compared to 92% in previous two quarters have maintained either more or same average levels of inventory.


Outlook for exports seem to be less optimistic vis-à-vis previous quarters. Although, 48% respondents expect no change in the export levels, but 32% expect exports to fall.

Appreciation of rupee has made the respondents apprehensive of exports outlook with majority of the respondents (around 57%) reporting that their exports were affected in Q-2 due to rupee appreciation.


Hiring outlook for the sector remains subdued in near future as 85% of the respondents in Q-3 2017-18 mentioned that they are not likely to hire additional workforce in next three months.

This proportion is much higher than the previous quarter, where 73% of the respondents were not in favour of hiring additional workforce.

Interest Rate

Average interest rate paid by the manufacturers has slightly come down over last quarter showing signs of moderation with an average rate of 10.5% but the highest rate continues to be as high as 15%.

Production Cost

The cost of production as a percentage of sales for manufacturers in the survey has risen significantly for 59% respondents in Q-3 2017-18. This is primarily due to rise in minimum wages, raw material cost and cost of po