PMI data for December, release by Markit on behalf of the Nikkei PMI Manufacturing India data indicated that the rupee demonetisation took a toll on manufacturing performance.

"Companies saw new work and output dip for the first time in 2016. In turn, quantities of purchases were scaled back and employment lowered.The headline seasonally adjusted Nikkei India Manufacturing Purchasing Managers' Index recorded below the crucial 50.0 threshold for the first time in 2016 during December. Down from 52.3 in November to 49.6, the latest reading was indicative of a marginal deterioration in the health of the sector. Nevertheless, the average over the October-December quarter (52.1) was broadlyin line with that seen in the July-September period(52.2)," the Markit release said.

Four of the five sub-components of the PMI edged below 50.0, while average delivery times lengthened further. At the sector level, operating conditions deteriorated in both the consumer and intermediate goods categories.

Both pre-and post-production stocks decreased during December. The former saw the first monthly drop in 13 months, while inventories of finished goods declined for the eighteenth month running (albeit to the least extent in this sequence).

"Finally, cash flow issues reportedly impaired manufacturers' ability to work on outstanding business. Backlogs rose for the seventh consecutive month, but at the slowest rate in this sequence," a release by Markit stated.