Following the contraction in December in the wake of Chennai floods, January saw the Indian manufacturing sector rebound into expansion territory, as production and new orders recovered, the report said.
The Nikkei India Manufacturing PMI, a composite monthly indicator of manufacturing performance, stood at 51.1 in January, up from 49.1 in December.
A figure above 50 represents expansion while a reading below this level means contraction.
"The opening month of 2016 saw a rebound in new business - from both domestic and external clients - leading manufacturers in India to scale up output following a short-lived downturn recorded in December," Pollyanna De Lima, Economist at Markit and author of the report said.
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"Although the RBI is likely to continue its monetary policy loosening cycle in 2016, February's meeting will probably see the repo rate remaining unchanged at 6.75 per cent as the central bank will remain wary of inflationary pressures building in the country," Lima said.
According to official figures, WPI as well as retail inflation has been on a rising trend. In December, WPI-based inflation stood at (-)0.73 per cent, while retail inflation was at 5.61 per cent.
The government recently lowered its economic growth forecast for 2015-16 to 7-7.5 per cent from 8.1-8.5 per cent.