New Delhi [India], August 18 : India's manufacturing growth is expected to slow to a nearly two-year low of around 6 per cent in the first quarter of FY27, from 7.3 per cent in the previous quarter, as higher raw material costs amid West Asia tensions weighed on company profits, according to ICRA.
The rating agency estimates manufacturing gross value added (GVA) growth to moderate to around 6 per cent in Q1 FY27, the lowest since Q2 FY25.
"ICRA estimates the manufacturing GVA growth to moderate to ~6.0% in Q1 2026-27 from 7.3% in Q4 2025-26, the lowest growth print since Q2 2024-25," ICRA said in its press release.
The slowdown in manufacturing GVA comes despite an improvement in production volumes during the quarter. Manufacturing volume growth accelerated to 6.3 per cent in Q1 FY27 from 4.7 per cent in Q4 FY26, marking the fastest pace in six quarters, although the improvement was partly supported by a favourable base.
However, higher volumes did not translate into stronger profits. ICRA's analysis of the quarterly financial results of 978 manufacturing companies showed that while growth in their aggregate sales improved during the quarter, aggregate profits contracted after expanding in Q4 FY26.
"However, their aggregate profits contracted in Q1 2026-27 following the expansion in Q4 2025-26, as the West Asia crisis-led surge in raw material costs resulted in losses for the oil refining companies," ICRA said.
The impact was also visible across some manufacturing segments. Basic metals, coke and refined petroleum products, and chemicals and chemical products saw deterioration in their year-on-year performance during Q1, with ICRA saying these segments were partly affected by tensions in West Asia.
On the other hand, computer, electronic and optical products, electrical equipment, machinery and equipment, and motor vehicles, trailers and semi-trailers recorded a healthy improvement in their growth rates during the quarter. The agency said the improvement in the automobile segment reflected continued demand momentum following GST rate rationalisation.
At the broader industrial level, ICRA expects industrial GVA growth to have improved to 7.7 per cent in Q1 FY27 from 7.3 per cent in Q4 FY26, led by all sub-sectors except manufacturing.
Electricity generation growth accelerated sharply to a nine-quarter high of 9.3 per cent year-on-year during Q1 FY27 from 2.7 per cent in the previous quarter. ICRA attributed the increase partly to a favourable base and the delayed onset of the Southwest Monsoon across several regions, which prolonged elevated temperatures and boosted cooling-related electricity consumption.
For the overall economy, ICRA projects India's real GDP growth to have eased to a four-quarter low of 7 per cent in Q1 FY27 from 7.8 per cent in Q4 FY26.