LSM growth steadies

The composition of LSM growth continues to evolve. Automobiles remain the largest contributor on a cumulative basis, with output still up nearly 59 percent year-on-year. While the pace has moderated in recent months, growth remains firmly in high double digits. The more meaningful challenge now is the base effect. With FY26 having delivered exceptionally strong numbers, sustaining similar growth rates into FY27 will become increasingly difficult. Food has emerged as the second-largest pillar of recovery, though the story is almost entirely one of sugar. Production has climbed to a record 7. 7 million tons, up 32 percent from the previous year, making it the single biggest driver within the food basket. Elsewhere, edible oil, ghee and tea have remained largely flat, underscoring how concentrated the sector’s gains have been. Wearing apparel, tracked through ready-made garment export quantities, completes the top three contributors. After posting double-digit growth through much of the fiscal year, momentum has eased steadily. Cumulative growth has moderated to around 7 percent, and June export data suggests FY26 is likely to close around 5. 5 percent. The sector will remain a meaningful contributor, but its outsized role in driving LSM is gradually diminishing. Petroleum has quietly re-emerged as another important source of support. Higher domestic demand, coupled with improved local crude availability, has helped refine output recover sharply after a subdued FY25. The drag from lagging sectors, meanwhile, remains surprisingly limited. Pharmaceuticals and chemicals continue to underperform among the larger industries, while textiles, despite carrying the highest weight in the LSM basket, remain marginally in negative territory. Importantly, none of the contracting sectors has recorded deep declines, allowing the overall manufacturing recovery to retain its broad-based character. Looking ahead, the macro backdrop is arguably the most supportive it has been in years. Lower interest rates, coupled with substantially lower industrial electricity tariffs, should continue to improve manufacturing competitiveness and encourage capacity expansion. The easing in financing and energy costs is likely to provide the next leg of support to LSM, particularly for sectors that have yet to participate meaningfully in the recovery. Even so, expectations should remain grounded. FY22 continues to represent an exceptionally high benchmark, and the current recovery is better viewed as a steady reclamation of lost ground rather than the beginning of a new industrial boom.

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