A figure above 50 indicates expansion, anything lower signals contraction.
The survey by data analytics firm IHS Markit tracked new orders, output, jobs, suppliers’ delivery time, and stocks of purchases at around 400 manufacturers.
"The PMI results show that a notable rebound in demand boosted growth of sales, input buying, production and employment as firms focused on rebuilding their inventories and expanding their capacities in anticipation of further increases in new business," Pollyanna de Lima, principal economist at IHS Markit, said.
With improvements in a number of leading indicators, including goods and services tax (GST) collection and core sector industries, analysts expected factory output to report modest growth in January.
“The consumer goods sub-sector remained the brightest spot, although growth was sustained in intermediate goods and capital goods moved back into expansion," IHS Markit said in a statement.
Companies recorded the strongest upturn in new business intakes for over five years, which they attributed to better underlying demand.
“The rise in total sales was supported by strengthening demand from external markets, as noted by the fastest increase in new export orders since November 2018. Manufacturers particularly noted higher sales to clients in Asia, Europe and North America, with favourable exchange rates assisting the upturn," it added.
IHS Markit said hiring activity improved in January, with firms increasing employment at the quickest rate in close to seven-and-a-half years. “New business growth and projects in the pipeline were cited as the main reasons for job creation," it added.