India’s manufacturing sector expanded at a slower rate to a three month low in January, as volume of new export orders eased from the previous month, according to the HSBC India Manufacturing Purchasing Managers' Index (PMI) prepared by Markit.

The HSBC India Manufacturing PMI -- a composite indicator that gauges the factory output and operating conditions in the manufacturing sector -- showed that the country posted a reading of 53.2 in January, down from 54.7 in December, the slowest monthly gain in three months.

The index has remained above 50 -- indicating growth -- for almost four years.

The data showed that the manufacturing activity slowed down slightly as new orders lost momentum largely due to the continuing weakness in global market, particularly in euro zone countries and domestic constraints such as power shortages. The slow recovery in the U.S. and the European economies have affected the export demands adversely as the exports fell for the eighth consecutive month in November, data released by the government showed.

However, the survey indicated that the manufacturing output in Asia’s third largest economy edged up with new export orders registering growth for the fifth consecutive month although at a slower rate.

The volume of new orders increased for the 46^th successive month, and the manufacturers increased their input buying to meet the growing demands pushing the pre-production inventories up for the ninth consecutive month.

However, power outages reportedly affected the manufacturing output adversely, prompting manufacturers to depend on post-production inventory to meet the demand requirements wherever possible, leading to depletion in the finished goods stock.

Employment in Indian manufacturing sector increased slightly in January, as manufacturers toiled to meet higher workloads.

"The growth momentum in the manufacturing sector eased in January as a slower expansion in new orders and power outages slowed output growth. To meet new orders, manufacturers still rely on a drawdown in stocks of finished goods, which should provide support for output growth in coming months as stocks are replenished,” Leif Eskesen, chief economist for India at HSBC said.

Input and output prices increased in January as the input inflation was up for the 46^th successive month owing to a rise in fuel and raw material prices, while the output prices rose to correct the profit margins.

“Encouragingly input and output price inflation continued to ease, albeit only gradually, supporting the case for RBI's cautious policy rate cut earlier this week,” Eskesen observed.

Earlier this week, the Reserve Bank of India cut its key interest rates by 25 basis points – for the first time in nine months – to boost the economic growth that has touched a nine-year low. The Central Bank is cautious on easing the monetary policy as the headline inflation in the country has remained persistently high in the past year.  

India's Wholesale Price Inflation declined to 7.18 percent in December from 7.24 percent in November, but remains above the levels of what the Central Bank identifies as comfort level.

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