India's manufacturing sector showed signs of recovery in January, with factory activity rising slightly after hitting a two-year low in December. The improvement was driven by strong inflows of new orders, increased production, and continued, albeit limited, hiring. Domestic demand remained the main driver of sales growth, while export orders also rose, particularly from regions such as Asia, Australia, Canada, Europe, and the Middle East.

Despite these gains, manufacturers' confidence in future activity weakened, with business optimism falling to its lowest level in three-and-a-half years. Only a small proportion of respondents expected output to rise over the next year. Input costs increased at the fastest pace in four months, but selling price inflation eased to its lowest point in nearly two years, as firms cited improved efficiency and market competition as factors preventing significant price hikes.