India's industrial activity picks up pace in Feb'26 but West Asia crisis may halt momentum

• Crude steel production increases by 11% y-o-y, demand up 9%
  
  
• GST-cuts continue to drive robust y-o-y growth in auto sales
  
  
• Manufacturing PMI rises m-o-m as domestic demand rebounds
  
  

Morning Brief: India's steel industry witnessed healthy momentum in February 2026, as activity in end-user segments gained pace. Trade deals with the EU and the US (together, these economies account for 25% of global GDP) injected positive sentiment. However, this was tempered by geopolitical uncertainties and a slight slowdown in economic activity, as evidenced by a m-o-m drop in gross GST collections.

Highlights of steel, iron, coal industry dynamics

Indian steel market dynamics remained healthy in February 2026. Crude steel production climbed higher by 11% y-o-y, though it failed to reach Januarys record peak. According to the Joint Plant Committee (JPC), steel consumption rose 9% y-o-y during the month.

Steel exports moderated on weaker demand from the EU amid growing uncertainty regarding trade barriers. Imports continued their downtrend, aided by the safeguard duty and a depreciated rupee, both of which raised procurement costs.

However, iron ore imports surged in February, with overall volumes projected to reach a seven-year high in FY26, as high-grade ore remained in short supply. Exports, on the other hand, fell 25% m-o-m to a four-month low of 2.48 mnt (provisional), as Chinese demand weakened due to the Lunar New Year holidays and domestic realisations remained more attractive.

Coal production also decreased slightly m-o-m, with Coal India reporting a 6% drop to 74.7 mnt. However, volumes were higher by 2% y-o-y.

Coal imports also fell across both coking and non-coking variants. First, sufficient domestic coal availability and comfortable inventories at power plants reduced non-coking imports by 0.8% m-o-m. Secondly, coking coal imports fell 13% m-o-m to a one-year low, as steel mills delayed purchases, waiting for price corrections following a supply constraint-led surge in January.

Macroeconomic indicators in Feb'26

IIP growth accelerates

The Index of Industrial Production (IIP) grew 5.2% y-o-y, driven by manufacturings 6.0% uptick. Growth was higher than Januarys 4.8% and February 2025s 2.7%.

Electronic equipment, machinery, motor vehicles, and transportation equipment were the main drivers of higher manufacturing output.

In terms of use-based classifications, capital goods (+12.5%), infrastructure and construction goods (+11.2%), and consumer durables (+7.3%) witnessed accelerated expansion compared to the year-ago period.

Auto production, sales surge y-o-y as bullish sentiment continues

Automotive sales and production were higher by 22% and 29% y-o-y, respectively, despite slight dips m-o-m. According to the Society of Indian Automobile Manufacturers (SIAM), February recorded the highest-ever sales in passenger vehicles, two-wheelers, and three-wheelers.

Improved affordability due to the Goods and Services Tax (GST) reductions continued to ensure strong demand. Notably, in recent months, the supply-demand balance has grown much healthier, indicated by passenger vehicle inventory falling to 27-29 days compared to 32-34 in January 2026. Holding periods are inching closer to the recommended 21 days, as per the Federation of Automobile Dealers Associations (FADA). Notably, in February 2025, inventories were at 50-52 days, which had grown to around 60 days in September.

Rural demand remained robust, with tractors logging the highest growth among vehicle categories and rural sales outpacing urban ones in the passenger vehicle segment. Favourable agricultural outcomes also boosted rural liquidity, while the marriage season and new product launches lent support.

Construction equipment was the only sector to record a marginal 1% y-o-y decline in sales, reflecting weaker spending by contractors. However, Februarys decline was much narrower than Januarys -21%, indicating improved construction and infrastructure activity.

Power consumption climbs up to 15-year high

Total power consumption rose 2% y-o-y to its highest in 15 years at 133 billion units in February, as per media reports. Accordingly, daily average consumption increased 3% m-o-m and 1% y-o-y.

The slight m-o-m uptick could be attributed to greater cooling demand, brought on by unseasonally high temperatures and steady industrial expansion.

Moreover, power generation edged up by 2.4% y-o-y to 140 billion units, as per CRISIL. This was despite a 0.5% drop in coal-based output, which accounted for 73% of total generation. Lower thermal power output was offset by growth in generation from renewable sources. Coal inventories were higher in February, at 59 mnt against 54 mnt in the year-ago period and sufficient for 19 days of use against 18 days in January.

Merchandise exports rise slightly m-o-m

Merchandise exports was stable m-o-m at $36.61 billion in February but was marginally lower y-o-y. Among steel-using end-user sectors, engineering goods (12.9%) and electronic goods (10.4%) recorded higher exports y-o-y. However, growth in electronic goods was relatively slow, given that April 2025-February 2026 (11MFY26) recorded an increase of 28% y-o-y. Higher import tariffs from the US have contributed to the steady sharp drop-off.

Manufacturing PMI rises m-o-m as domestic demand rebounds

Indias manufacturing purchasing managers index (PMI) rebounded to a four-month high of 56.9 points in February 2026, as domestic demand improved sharply, leading to production reaching a four-month peak. However, exports remained a drag, as international sales grew at the weakest pace in 17 months.

Growth occurred on a y-o-y basis as well in February. However, considering the full fiscal year, manufacturing growth has remained relatively measured y-o-y. Average PMI during 11MFY26 stood at 57.6 compared to 57.3 in the year-ago period. Persistent geopolitical uncertainties and trade tensions during FY26 limited growth despite strong domestic consumption. IIP data supports this, showing 5% manufacturing growth in 11MFY26 against 4.1% in 11MFY25.

Outlook

Growth momentum will undoubtedly cool in March 2026, with the US-Iran conflict sharply raising input costs and disrupting raw material supply chains. Manufacturers in steel-using segments such as electronics and consumer durables and automotive components have been forced to reduce output, both of which will drag down manufacturing-related performance indicators. Although fiscal year-end domestic demand will drive domestic auto sales, rising fuel prices will keep buyers cautious. Additionally, merchandise exports will also fall due to shipping disruptions. Construction, however, will continue at robust pace, as project deadlines loom.