MUMBAI, May 4 (Reuters) - Activity in Indian factories expanded for the first time in five months in April as a swelling orders pipeline pointed to a tentative recovery, a survey showed on Monday.
The ABN AMRO Bank purchasing managers' index (PMI) based on a survey of 500 companies, rose to 53.3 in April from March's 49.5, climbing above the threshold of 50 that separates expansion from contraction.
The latest reading is the highest in seven months and it has steadily risen after hitting a trough of 44.4 in December. A The PMI survey, which is compiled by UK-based Markit Group, comes well ahead of official statistics.
Several research notes in the past few days have pointed to improvement in economic activity in the months ahead. But the central bank remained cautious about the outlook at its policy review last week.
Manufacturing makes up about 16 percent of India's gross domestic product. Government data shows India's factory output fell for the third time in five months in February as the global slowdown hit hard but analyst said they saw some signs of revival after a dismal March quarter.
The boost in manufacturing index came from a surge in new orders. The new orders index rose to 54.9 from 49.5 in March.
The central bank expects the economy to grow at around 6 percent in 2009/10, a seven-year low, after growing at an average rate of around 9 percent or more in three fiscal years to March 2008.
In order to stimulate demand in Asia's third-largest economy, the central bank has aggressively cut rates since October, most recently last week and has flooded the banking system with cash to stoke bank lending.
The key short-term lending rate has now been cut by 425 basis points in six moves to stand at 4.75 percent.
The government has cut factory gate duties and announced stimulus packages including $4 billion in extra spending to protect growth in the face of the global slowdown. (Reporting by Saikat Chatterjee; Editing by Surojit Gupta and Tomasz Janowski)