The Nikkei Manufacturing Purchasing Managers' Index, compiled by Markit, rose to 50.7 in May from 50.5 in April. A reading above 50 indicates expansion.
Input prices rose at their fastest rate in 14 months but manufacturers absorbed much of the increase. The output price index, which offers clues on inflationary pressures, remained in expansion above 50 but fell from April.
The output sub-index declined to a five-month low, as foreign demand contracted, albeit marginally. Domestic demand appeared to have picked up.
"Signs of challenging economic conditions in the Indian manufacturing sector were evident in May, with output losing further growth momentum," said Pollyanna De Lima, an economist at Markit.
"So far, there is little evidence that the latest cut in the benchmark rate acted to significantly improve business conditions for manufacturers. Therefore, further stimulus may be necessary to shift the economy into a higher gear."
The Reserve Bank of India cut its benchmark repo rate by 25 basis points in its April meeting to 6.50 percent, the lowest in more than five years.
But India's central bank is seen as unlikely to ease again at its June meeting after April retail inflation rose to a faster than expected pace of 5.39 percent, the first pickup in retail inflation since January.
India's economy grew at a faster-than-expected pace of 7.9 percent in the January-March quarter from a year earlier, which could further persuade the RBI to hold steady.
© Thomson Reuters 2016
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