New Delhi: Indian industry’s business confidence rebounded in the second quarter of fiscal year 2027 (Q2FY27), as stronger domestic demand, rising capacity utilization, improving margin expectations and robust hiring plans point to a broadening recovery that could revive private investment, according to the Confederation of Indian Industry (CII).
The CII Business Confidence Index (BCI) rose to 66.0 in Q2FY27 (July-September) from 60.8 in Q1, returning to its year-ago level. CII attributed the turnaround primarily to the easing of disruptions stemming from the West Asia war.
The outlook also strengthened. The Expectation Index jumped to 67.7 from 60.6, well above the Current Situation Index, which rose to 62.6 from 61.2. The gap suggests companies expect operating conditions in the coming quarter to improve materially from the quarter just completed.
“The optimism shown by businesses, as reflected in the BCI, is a clear testament to the inherent resilience of the Indian economy even as the geopolitical uncertainty continues,” CII director general Chandrajit Banerjee said.
Steady improvement in business activity, backed by robust domestic demand and stable macroeconomic indicators, reinforces the view that government policies will support faster growth in output and new orders, he said.
The survey comes against stronger-than-expected economic growth. India’s GDP grew 7.8% in the first quarter of FY27, up from 6.9% a year earlier, according to government data. The figure exceeded projections made by economists. GDP growth was estimated at 7.4% in a Mint poll of 21 economists.
CII said its findings reinforce the view that stronger headline growth is increasingly translating into on-ground activity.
About 40.7% of respondents said macroeconomic strength was fully or largely reflected in their business performance, the largest response category. Just 13.4% said strong macroeconomic performance had not translated into better on-ground conditions.
Demand picks up
Resilient domestic demand remains a key driver of industry confidence. About 61% of respondents expect domestic demand to rise in Q2FY27, while only 9.6% foresee a moderation. The share expecting demand growth of more than 20% rose to 16% from 12.9% in Q1, showing that optimism is strengthening at the upper end.
That demand outlook is translating into higher capacity-utilization expectations. About 51.6% of respondents expect utilization to exceed 80% in the second half of 2026, up from 36.6% in the first half. Meanwhile, the share operating below 75% capacity is expected to fall to 25.9% in H2 from 35.1% in H1.
Higher utilization could become a trigger for fresh private investment as companies approach the limits of existing capacity. CII said sustained high utilisation could spur investment in the coming quarters.
More than half of respondents, or 56.3%, also expect the Reserve Bank of India to cut the policy rate within six months, while 8% anticipate a hike and 35.7% expect no change. Among those expecting a cut, 27.7% see a single 25-basis-point reduction, while 28.6% expect cumulative cuts of 50 basis points or more.
Cost pressures remain a concern but are showing early signs of easing. About 61.1% expect costs to rise in Q2FY27, marginally below the share reporting increases in Q1. The proportion expecting costs to remain unchanged rose to 33.2%, while those expecting cost increases of more than 20% fell to 13.3% from 14.6%.
The combination of firmer demand and easing cost pressures is improving the profit outlook. About 42.5% expect margins to improve in Q2FY27, while 37.4% expect them to remain unchanged and around 20% anticipate a moderation.
Hiring plans have strengthened too. About 53% of companies expect to increase their workforce in Q2FY27, including 18.5% planning to raise employment by more than 10%. Only 8.4% expect headcount to fall, while 38.7% see no change.
Risks remain
External risks, however, remain a significant concern. Global trade uncertainty was the biggest risk over the next six months for 34.3% of respondents, followed by commodity-price volatility at 19.5%. Weak domestic demand and weak or uneven monsoons were cited by 16.1% and 15.7%, respectively.
“Indian industry is entering the second half of the year with greater confidence. While external risks require continued attention, the underlying momentum remains encouraging,” Banerjee said.
The survey was conducted between 23 July and 24 August and covered 238 firms across sectors, regions and firm sizes, including manufacturing and services companies.