Weak demand dampens factory activity in June

BENGALURU (Reuters) - Order books at Indian factories filled up at the slowest pace since September last year, dampening overall manufacturing activity and putting companies off from hiring staff, a business survey showed.

The Nikkei Manufacturing Purchasing Managers' Index, compiled by Markit, fell to 51.3 in June from 52.6 in May but stayed above the 50-point mark that separates growth from contraction for the 20th month.

"June PMI data pointed to a slowdown in India's economic upturn. New business expanded at a noticeably weaker pace, in part reflecting a loss of momentum in export business," said Pollyanna De Lima, economist at Markit.

"Manufacturers remained in cautious spirits and employment numbers were unchanged once again," De Lima added.

India's gross domestic product grew 7.5 percent in the three months ending March, a revised method of calculation showed, making it one of the fastest-growing economies in the world.

But some economists are sceptical about the new method for calculating GDP, which has put the Indian economy ahead of even China.

The PMI survey suggested demand for Indian goods was cooling at home and abroad. The new orders sub-index came in at its lowest reading since September at 51.8 from 54.3.

Companies kept price rises to a minimum in June, good news for an economy that has long battled stubbornly high inflation.

"With price pressures being weak and growth losing steam, June's dataset suggests that the Reserve Bank of India's loosening cycle is, therefore, likely to continue," De Lima said.

The RBI has eased policy three times this year, taking the repo rate down to 7.25 percent from 8 percent, but will wait until at least October before cutting it further, a Reuters poll found last month.

India's inflation rate has cooled dramatically, coming in at 5.01 percent in May compared with a peak of more than 11 percent in 2013. But RBI Governor Raghuram Rajan is concerned poor monsoon rains could drive up food prices in the near term.

(Reporting By Aaradhana Ramesh; Editing by Jacqueline Wong)