The HSBC India Manufacturing PMI for the month of December showed a rebound to 54.2 compared to 51 in November, registering the strongest improvement in business sentiments since June.

The improvment in the manufacturing was registered on the back of strong demand from domestic as well as foreign buyers. The strong PMI suggests that the manufacturing sector in India is not that weak as depicted by the latest release of IIP data which showed contraction of 5.1%. The Sept quarter GDP was also below 7% and raised serious growth concerns for the economy.

New orders for December rose to 57.9 from 50.4 in November and the output index increased to 55.8 from 50.5 in November.

Employment in the sector also showed growth at 50.4 from 48.6 in November,for the first time in five months.

But the goods news ends up at Inflation, the input prices eased barely to 62.7 against 63.1 in November, and output prices rose to 56.2 in December from 55.4 in November.

Input cost rose as raw material and petrol prices have increased during the period. Overall, the rate of input cost inflation remained strong and above the long-run series average, despite slowing slightly since November. Firms partly passed on greater cost burdens to clients by raising their output charges in December.

Commenting on the India Manufacturing PMI survey, Leif Eskesen, Chief Economist for India & ASEAN at HSBC said: "Activity in the manufacturing sector rebounded in December led by higher demand from both domestic and foreign clients, suggesting that the momentum in the sector is not quite as weak as official and more dated IP data would suggest. The rebound in growth added to the build-up in backlogs of work and also stabilized employment, which crawled back into positive territory. The solid demand from clients allowed manufacturing companies to increase output prices at an accelerated pace to pass on rising costs. While the sequential inflation of input costs decelerated slightly, it remained high by historical standards. All in all, these numbers suggest it's premature for the RBI to replace inflation with growth as the main concern."