KEY TAKEAWAYS:  IIP recorded its strongest activity in 23 months, expanding by 7.3% YoY in Jun-26, up from 5.0% (revised lower by 10 bps) in May-26.  While market participants were anticipating an improvement (with consensus estimates around 6.0%), the headline print posted an upside surprise. On a sequential basis, IIP rose 0.5% MoM, defying the average ~1.0% June contraction seen over the past three years, indicating that industry recouped momentum lost during the Middle East conflict-led pullback over March–May. The upside in the headline IIP growth was led by Manufacturing sector that posted an expansion of 7.8%YoY – the highest level in past 7 months On the use-based side, all sub-categories recorded an incremental improvement in pace of growth vs. previous month, except for capital goods. Nevertheless, capital goods remained the fastest growing sector. The recovery in Jun-26 IIP was likely aided by a sharp correction in crude following the US-Iran MoU, with Brent falling to USD 85.4 bl in June from USD 107.1 bl in May, easing input-cost pressures. This was consistent with other high-frequency data - such as core industries growth, PV sales and Q1 FY27 corporate earnings. The encouraging performance in Q1 FY27 masks emerging concerns stemming from monsoon deficiency, geopolitics, second-order demand shock and fading tailwind from urban consumption. Consistent with this, we retain our FY27 GDP growth forecast of 6.4%, down from 7.7% in FY26.

India’s industrial production recorded its strongest activity in 23 months, expanding by 7.3% YoY in Jun-26, up from 5.0% (revised lower by 10 bps) in May-26. While market participants were anticipating an improvement in industrial production activity in Jun-26 (with consensus estimates around 6.0%), the headline print posted an upside surprise.

 

Key highlights of Jun-26 data 

• On a sequential basis, IIP rose 0.5% MoM, defying the average ~1.0% June contraction seen over the past three years, indicating that industry recouped momentum lost during the Middle East conflict-led pullback of March–May 2026. 
• Sectoral classification (annualized comparison): 
• The upside in the headline IIP growth was led by Manufacturing sector  - that posted an expansion of 7.8%YoY – the highest level in past 7 months.
• Within Manufacturing, 19 out of 23 sub-sectors recorded positive growth. The top 3 performing sub-sectors were Electrical equipment, Motor vehicles, trailers and semi-trailers and Manufacture of textiles. o 
• The 4 sub-sectors which recorded negative growth were Wearing apparels (for the 6th consecutive month), Wood & wood products (4th consecutive month), Chemicals and Coke & refined products (2nd consecutive month each).
• Growth in Mining & Quarrying swung into positive territory (at 1.0%), after contracting in previous 5 months. The sizeable shortfall in Jun-26 rainfall vis-à-vis LPA is likely to have supported mining activity.
• Among the other utility sectors – both Electricity & gas as well as Water supply, sewerage, & waste Management growth improved further to 10.6% (severe summer temperatures) and 6.1% respectively in Jun-26 (vs. 10.3% and 5.5% in May-26). 
• Use-based classification (annualized comparison): 
• All sub-categories recorded an incremental improvement in pace of growth vis-à-vis previous month, except for capital goods.
• Nevertheless, capital goods remained the fastest growing sector, clocking a double-digit expansion for the third consecutive month.
• Consumer goods posted a noteworthy growth, that doubled in pace to 6.1% in Jun-26 from 3.0% in May-26.
• This was led by consumer non-durables, that rose to a 6-month high of 4.9% vs. -0.4% in May-26.  

 

Inference and outlook

The recovery in Jun-26 IIP was likely aided by a sharp correction in crude following the US-Iran MoU, with Brent falling to USD 85.4 bl in June from USD 107.1 bl in May, easing input-cost pressures. This is consistent with other high-frequency data, showing a similar trend:

• The nine core industries expanded 5.0% YoY in Jun-26 vs. 3.2% in May-26 - the first reading on the revised 2022-23 base year, which now accounts for 32.9% of IIP (down from 40.2% under 2011-12).
• Passenger vehicle sales stayed resilient at 24.1% (vs. 27.3% in May), supported by residual GST-normalization effects and healthy demand.
• Q1 FY27 corporate earnings paint a similar picture, with most manufacturing sectors reporting improved net sales, though operating margins are under pressure in commodity and energy-exposed sectors (e.g., chemicals and petroleum products).

 

Having said, the encouraging performance in Q1 FY27 masks emerging concerns.

• Monsoon: The southwest monsoon is running a cumulative deficit of 16% so far (as of Jul 28^th) with Kharif sowing witnessing a 5% annualized contraction. Although rainfall activity has recovered in July, it has been erratic and volatile. The likelihood of strengthening of El Nino conditions in the second half of the monsoon season (spilling over to the north-west monsoon season) could impinge upon agricultural production, and thereby rural consumption expenditures.
• Geopolitics: While the Middle East conflict has eased compared to Mar-May 2026 levels, shipping through the Strait of Hormuz remains below pre-conflict levels, keeping freight costs and supply disruptions elevated. We maintain our assumption of Brent crude averaging at USD 80–85 bl range in FY27.
• Second-order demand shock: Cost-push pressure on goods prices could erode purchasing power, hitting price-sensitive sectors such as FMCG, consumer durables and textiles with a lag.
• Fading tailwinds: Urban consumption is absorbing higher fuel and input costs, with a backloaded 25–50 bps rate hike penciled in for H2 FY27, while the boost from GST rationalization is tapering.

 

Overall, we expect industrial growth to moderate over the remainder of FY27 from Jun-26’s elevated pace, as monsoon uncertainty and a fading GST impulse cloud the demand backdrop. Moderation in crude prices, public capex momentum and targeted MSME support should cushion the downside. Consistent with this, we retain our FY27 GDP growth forecast of 6.4%, down from 7.7% in FY26.

 

 

Table 1: Annualized growth in IIP and its key components

	Weight (%)	Jun-25	Jun-26	Apr-Jun FY26	Apr-Jun FY27
IIP	100.0	2.2	7.3	3.4	5.8
Sectoral classification
Mining & Quarrying	11.1	4.1	1.0	3.5	-1.4
Manufacturing	76.1	2.4	7.8	4.1	6.3
Electricity & Gas Supply	10.9	-2.0	10.6	-1.8	8.6
Water Supply, Sewerage & Waste Management	2.0	7.9	6.1	8.2	6.0
Use-based classification
Primary Goods	31.1	2.1	4.9	1.2	2.9
Capital Goods	8.1	3.4	14.2	8.8	14.0
Intermediate Goods	22.4	3.1	9.3	5.0	8.5
Infrastructure & Construction Goods	10.9	6.6	7.5	6.1	6.8
Consumer Durables	11.3	1.4	7.7	2.8	7.2
Consumer Non-durables	16.1	-2.0	4.9	1.6	1.5