New Delhi, Jan 2 (PTI) India's manufacturing sector activity witnessed the weakest improvement in the sector in two years in December on account of softer expansions in new orders, prompting firms to limit input purchases and job creation, a monthly survey said on Friday.

The seasonally adjusted HSBC India Manufacturing Purchasing Managers' Index (PMI) -- an indicator of sector performance -- fell from 56.6 in November to 55 in December.

In the PMI parlance, a print above 50 means expansion, while a score below 50 denotes contraction.

"Even with growth momentum easing, India's manufacturing industry wrapped up 2025 in good shape. The sharp rise in new business intakes should keep companies busy as we head into the final fiscal quarter, and the lack of major inflationary pressures could continue to support demand," said Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence.

The end of the 2025 calendar year was characterised by a loss of growth momentum across several measures tracked by the HSBC India Manufacturing PMI survey. Production growth slowed to a 38-month low amid the weakest upturn in new orders for two years.

Part of the slowdown in total sales reflected a softer increase in international orders. New export orders rose to the least extent in 14 months. Where growth was signalled, panellists cited better demand from clients in Asia, Europe and the Middle East.

"We have seen a steady spell of softer growth in new export orders. In fact, the share of companies signalling higher international sales in December was about half of the average for 2025. The survey's anecdotal evidence has also pointed to a narrower range of export destinations, with goods mainly heading to Asia, Europe and the Middle East," Lima said.

A softer increase in new business intakes prompted companies to limit the extent to which inputs were purchased. Moreover, amid a general lack of pressure on operating capacity, factory employment increased only marginally in December.

"The pace of job creation was the lowest in the current period of growth that began in March 2024," the survey said.

On the price front, the survey said input costs rose at a historically negligible pace. Concurrently, the rate of 'charge inflation' eased to a nine-month low.

Going ahead, Indian goods producers foresee an increase in output during 2026 relative to present levels, but the overall sentiment level has faded to its lowest in close to three-and-a-half years.

While advertising, positive demand trends and new product releases were seen as tailwinds to the outlook, some firms were concerned about competitive pressures and market uncertainty.

"With Indian manufacturers facing less intense cost pressures than elsewhere, many will be hoping that competitive pricing can help bring in new business from other regions in the new year," Lima said.

S&P Global compiles the HSBC India Manufacturing PMI from responses to questionnaires sent to a panel of around 400 purchasing managers. PTI DRR ANU ANU