The country's manufacturing sector activity improved in December driven by new orders that rose at the fastest pace since July as companies ramped up production and resumed hiring efforts, a monthly survey said on Thursday.
Notwithstanding the improvement in operating conditions during December, companies were cautious regarding the annual outlook of 2020 and this could have an impact on job creation and investment in the year, the survey said.
The IHS Markit India Manufacturing PMI rose from 51.2 in November to 52.7 in December, registering the "joint-strongest" improvement in 10 months.
"Factories benefited from a rebound in demand, and responded by scaling up production to the greatest extent since May. There were also renewed increases in input purchasing and employment during December," said Pollyanna de Lima, Principal Economist at IHS Markit.
As per the survey, new work orders witnessed marked improvement, with the pace of expansion picking up to the fastest since July.
Moreover, the uptick in total sales was supported by higher demand from overseas. New export orders expanded for the 26th month in a row, albeit modestly, the survey said.
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This is the 29th consecutive month that the manufacturing PMI has remained above the 50-point mark. In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction.
Lima, however, said "a note of caution is evident from the survey's measure of business confidence. The degree of optimism signalled at the end of 2019 was the weakest in just under three years, reflecting concerns over market conditions, which could restrict job creation and investment in the early part of 2020".
According to the survey, production is expected to expand in the coming 12 months, but the degree of optimism weakened to a 34-month low.
On the inflation front, the overall rate of inflation reached a 13-month high.
"At the same time, price indicators showed accelerated rates of inflation for both input costs and output charges. The latter reflected a combination of improved pricing power, given the favourable demand environment, and efforts to protect margins from cost rises," Lima said.
The Reserve Bank of India is scheduled to hold its Monetary Policy Committee (MPC) during February 4-6, 2020.