The country's manufacturing sector growth improved both in terms of month-on-month as well as
yearly basis in August, an SBI research report said, adding that mining and electricity are still acting as a drag on the economic activity.
The yearly SBI Composite Index, an indicator for manufacturing activity in the country, for August increased to 53.1 from 49.7 in the previous month.
The Monthly Index also improved, albeit with lesser magnitude to 52.2 in August from 46.7 in July.
"The upturn has been majorly driven by manufacturing, while mining and electricity are still acting as a drag on economic activity," the report said adding that "we expect, August IIP may be the highest since February 2015."
The pickup in economic momentum was supported by positive trends in capital goods sector. Moreover, the order inflow of four major companies, BHEL, L&T, ABB Ltd and Thermax Ltd, also grew by 5.5 per cent (year-on-year) in the June quarter.
Looking ahead, it is expected that growth in order inflow in this fiscal would be in the range of 15-17 per cent and this would largely be driven by state utilities.
However, pricing pressure still persists in the system due to excess manufacturing capacity and lower opportunities.
"As the government is taking steps in the right direction in terms of policy action, we believe that execution will pick up from second half of fiscal year 2015-2016," the report said.
An index value of 42 to 46 means (moderate decline), 46 to 50 (low decline), 50 to 52 (low growth), 52 to 55 (moderate growth) and above 55 high growth, SBI said.
The SBI Composite Index rivals the existing data point from Nikkei. It has been developed on basis of the bank's internal loan portfolio, which mirrors the credit demand in the country, and other data sets available in public domain.