Manufacturing-sector activity slowed in March after posting the strongest expansion in a year in the previous month, tempering optimism over a recovery in the economy.

The HSBC’ Purchasing Manager Index or PMI dropped to 51.3 in March from 52.5 in February.

Commenting on the latest index, Leif Eskesen, Chief Economist for India & ASEAN at HSBC, said that the momentum in the manufacturing sector eased on the back of a slowdown in order flows and raw material shortages. Meanwhile, inflation has also moderated.

This result is based on data compiled from monthly replies to questionnaires sent to purchasing executives in around 500 manufacturing companies.

It also indicated that output and new orders increased at weaker rates. However, growth of new export orders picked up over the month. This resulted in taking PMI average for January-March 2014 to 51.7, which was the highest since the same period in 2013.

After elections “Growth is likely to remain moderate in the coming months as fiscal tightening, relatively high corporate leverage, and rising non-performing loans in the banking system pose headwinds to growth. While we might see traction on economic reform and execution of investment projects after the upcoming elections,” he said.

Among the various sectors, consumer goods continued to outperform the other two market groups, with robust increases in output and new orders registered in March. Operating conditions also improved at intermediate goods companies, but deteriorated in the capital goods category. Manufacturing production growth across India eased from February’s one-year high and was modest overall. While panellists reported higher levels of incoming new work, there was evidence suggesting that competitive pressures and shortages of some raw materials hampered growth.

Indian manufacturers reported higher new export orders in March, stretching the current period of growth to six months. The latest increase in new work from abroad was marked and the strongest since April 2011. Anecdotal evidence highlighted improved demand conditions in key export markets.

Manufacturing employment increased in March, marking a six-month sequence of expansion. Nonetheless, the rate of job creation remained marginal as around 98 per cent of panellists reported unchanged workforce numbers. Inflationary pressures eased in March. Input costs rose at the weakest rate in nine months and one that was below the series average. Similarly, output prices increased at the slowest pace since last June.

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