India’s beleaguered manufacturing sector may have turned the corner in December, having hit a two-year-low in October, according to the results of a private survey released on Thursday.

The manufacturing Purchasing Managers’ Index (PMI) for India shot up in December to a joint fastest rate along with March at 52.7, evidence that the Indian economy may have bottomed out. The reading was 51.2 in November.

A figure above 50 indicates expansion. Anything lower signals contraction.

The survey by data analytics firm IHS Markit tracked new orders, output, jobs, suppliers’ delivery time, and stocks of purchases at around 400 manufacturers.

With improvements in a number of leading indicators, including goods and services tax (GST) collection, core sector industries, auto sales and non-oil merchandise exports, experts expect factory output to report modest growth in November after having contracted since September.

“Following a subdued start to the third quarter of fiscal year 2019/20, the Indian manufacturing industry took a significant step forward during December. With new orders rising at the fastest pace since July, companies ramped up production and resumed hiring efforts. There was also a renewed upturn in input buying," the firm said.

Four of the five sub-components of the PMI increased in December, while suppliers’ delivery times remained unchanged from the preceding survey period of November. At the sub-sector level, growth was led by consumer goods, though intermediate goods also made a stronger contribution to the headline figure. Meanwhile, capital goods remained in contraction.

The uptick in total sales was supported by higher demand from overseas. New export orders expanded for the twentysixth month in a row, albeit modestly.

Pollyanna de Lima, principal economist at IHS Markit, however, sounded a note of caution about 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," she said.

“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," de Lima said.

The Business Inflation Expectations Survey of 1,200 companies by IIM Ahmedabad released last week showed early signs of improvement in sales perception. In November, 68% of the companies in the sample reported that sales were “somewhat or much less than normal" compared to 76% that reported so in October.

Led by a contraction in manufacturing output by 1%, India’s gross domestic product growth decelerated to a six-and-a-half-year-low of 4.5% in the September quarter amid slowing domestic and external demand.

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