India's factory activity showed its sharpest rise in six months in December, helped by improved demand and growth in new orders for business, according to a survey published on Monday.
The HSBC India Manufacturing Purchasing Managers' Index (PMI) rose to 54.2 last month from 51.0 in November -- the strongest improvement since June last year -- reflecting an improvement in client demand.
A figure above 50 indicates growth while a figure below indicates contraction.
"Activity in the manufacturing sector rebounded in December led by higher demand from both domestic and foreign clients," said HSBC economist Leif Eskesen.
"This suggests that the momentum in the sector is not quite as weak as official and more dated industrial production data would suggest," he added in a statement.
Employment in the manufacturing sector also rose in December, ending a period of job losses which started in August, the HSBC statement said.
Last month the government said that industrial output shrank 5.1 percent year-on-year in October, which was well below expectations and added pressure on the central bank to halt its aggressive cycle of interest rate hikes.
The survey finding -- based on data from more than 500 manufacturers -- comes at a time of weak business confidence in India.
The index is still below the long-term average of 56.
The Reserve Bank of India has increased rates 13 times since March 2010 but in December paused and even raised the possibility of future cuts, due to the economic slowdown, a weakening rupee and high inflation.
Eskesen said it would be "premature" for India's central bank to begin targeting higher growth instead of lower inflation because input costs such as raw materials and fuel continue to climb.