LSM finds a higher base

The July Large-Scale Manufacturing (LSM) index rose to 119.13, its highest monthly reading ever recorded. This significant increase, despite a YoY growth rate of 3 percent, highlights that the industrial sector is now operating from a higher base. The composition of LSM growth has shifted, with wearing apparel emerging as the biggest contributor, expanding 22 percent YoY, and accounting for nearly two-thirds of the overall index increase.

The July number was boosted by an unusually strong base of RMG export quantities, with exported garments reaching 8.74 million dozen pieces during the month, the highest monthly quantity on record. Automobiles also played a crucial role, delivering the second-largest contribution to July LSM growth, with output up 57 percent YoY.

Petroleum products have quietly become an important source of support, with local refineries operating at higher capacity levels than in recent years. Food manufacturing, however, has moved into negative territory after providing strong boosts earlier. While the industrial picture remains relatively contained, the weakening sectors have not experienced sharp contractions.

Despite potential challenges such as rising domestic inflation and delayed expectations of declining interest rates, the LSM's entry into FY27 from a higher base shows a broader-based revival in industrial activity. This shift marks a significant improvement from the earlier part of the cycle, with industrial electricity tariffs now being competitive and improving the economics of running factories.

The industrial economy has established a healthier starting point, with several large sectors generating genuine production momentum. The test for FY27 will be whether this momentum can spread across industries without being hindered by renewed inflation and tighter financial conditions.