Bangalore/Mumbai: Indian manufacturing growth nearly stalled in September, turning in its weakest showing since March 2009 on slowing output and order growth as a year-and-a-half of interest rate increases and weakening global conditions take a toll on Asia’s third-largest economy.

The HSBC Markit India Manufacturing PMI fell more than two points to 50.4 from 52.6, close to the 50 mark dividing growth and contraction. The output index plunged by its biggest amount in one month since November 2008, to 51.1 from 56.0.

The new orders index, a gauge of future output, fell for the sixth straight month, while export orders contracted for a third month on weak global demand.

“Growth momentum in India’s manufacturing sector eased further in September. This was driven by weaker orders, with export orders still contracting due to the weaker global economic conditions," said Leif Eskesen, economist at HSBC.

With developed economies perilously close to another recession, emerging markets, which have provided the motor for global growth in recent years, are also facing a crunch.

China’s official purchasing managers’ index inched up to 51.2 from August’s 50.9, largely in line with a median forecast of 51.3 in a Reuters poll, data on Saturday showed.

India’s factory sector has gone from robust growth to near stall speed in just five months and the survey suggested more weakness lies ahead. Domestic car sales fell 10% in August from a year earlier after surging 30% in the most recent fiscal year.

India’s economy grew at 8.5% in the fiscal year that ended in March but growth in the June quarter fell to 7.7%, with some economists predicting sub-7% growth in coming quarters.

India’s exports rose 44.25% to $24.3 billion in August from a year earlier, although that is slower than the 54.2% annual growth clocked during the April-August period.

“The slowdown in real economic activity is probably just over half done, really, and weak numbers like this are not surprising," said Philip Wyatt, a Hong Kong-based economist with UBS.

Inflation pressures were slightly less intense than in August, the PMI survey showed, but still remain.

“While the persistent inflation pressures support RBI’s tightening bias, the slowdown in manufacturing growth suggests that the end to the tightening cycle is at least now in sight," said Eskesen.

The Reserve Bank of India (RBI) is faced with near double-digit inflation which it has tried to control through a dozen interest rate hikes over 18 months. Indian inflation climbed to 9.78% in August from a year ago, its highest in 13 months.

Economists in a Reuters poll expect the RBI to raise its key interest rate one more time in 2011 to 8.50%, although weakening domestic and global conditions may prompt it to refrain from further raising rates at its next review on 25 October.

Monthly headline inflation is due to be announced on 14 October, two days after the release of industrial production data.

“No doubt growth is slowing down. The latest PMI numbers are evidence of that. But RBI’s focus is likely to remain on inflation," said Vivek Rajpal, India rates strategist at Nomura.