India's manufacturing sector growth fell to an 18-month low in December amid softer increase in factory orders and output, despite minimal inflation, a monthly survey said on Wednesday.

The HSBC India Manufacturing PMI survey, conducted by S&P Global, showed that there were softer, albeit sharp, increase in factory orders and output, while business confidence towards the year-ahead outlook strengthened.

The seasonally adjusted HSBC India Manufacturing Purchasing Managers’ Index (PMI) fell from 56 in November to an 18-month low of 54.9 in December.

In Purchasing Managers' Index (PMI) parlance, a print above 50 means expansion while a score below 50 denotes contraction.

The HSBC India Manufacturing PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers.

"India’s manufacturing sector continued to expand in December, although at a softer pace, following an uptick in the previous month. Growth of both output and new orders softened, but on the other hand, the future output index rose since November," said Pranjul Bhandari, Chief India Economist at HSBC.

Despite a loss of growth momentum, the sector still expanded strongly in December.

New business gains, favourable market conditions, fairs and expositions collectively induced another sharp increase in manufacturing production during December, according to panellists.

The December data showed a 21st consecutive increase in international order receipts at goods producers in India.

"Companies noted gains from clients in Asia, Europe, the Middle East and North America. New export sales expanded at a moderate pace that was the joint-slowest in eight months," the survey noted.

On the prices front, input costs rose at the second-slowest rate in nearly three-and-a-half years and charge inflation softened to a nine-month low.

Among the items reported to have been up in price were chemicals, paper and textiles. Little-changed from November, however, the rate of inflation was negligible by historical standards and was the second-weakest in just under three-and-a-half years, as per the survey.

"Rates of increase in input and output prices were broadly unchanged," Bhandari added.

HSBC India PMI data showed a general lack of pressure on the capacity of manufacturers at the end of the third fiscal quarter. Subsequently, employment was largely stable in December.

When assessing the year-ahead outlook for production, Indian manufacturers were at their most upbeat for three months. Anecdotal evidence highlighted advertising, better customer relations and new enquiries as the main factors boosting business confidence in December, the survey said.

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