The HSBC India Services Purchasing Managers Index (PMI) -- an index of Indian services sector activity - rose to 55.7 in June, slightly up from 55.3 in May - registering the fastest expansion of output in four months.
The index has moved up for eight months in a row.
A reading above 50 shows that the sector is growing, while, below 50 indicates that the segment is contracting.
"While service sector activity grew at a slightly slower pace, new orders grew faster and this should hold up activity in coming months," HSBC Chief Economist for India and ASEAN Leif Eskesen said.
Service providers increased their staffing levels in June, marking a four-month sequence of expansion, thereby helping in the reduction of work backlog.
The increase in payroll numbers was the strongest since June 2011 but was below the long-run average for this series, HSBC noted.
Although sentiments eased a bit from the previous month, companies remained relatively optimistic about the outlook for the coming 12 months.
Business expectations remained positive at services companies in June. Although the level of optimism dipped to the lowest since March, sentiment was still above the long-run series average, said HSBC.
However, there was no respite from inflationary pressures as Input price inflation was recorded for thirty-ninth month running.
Input prices rose sharply at Indian services companies in June, with the rate of increase remaining same as the previous month. In a similar vein, output prices also increased in the services sector in each month since November 2010.
Meanwhile, India's wholesale inflation was 7.55 per cent in May. At the retail level, the Consumer Price Index (CPI) inflation for May was 10.36 per cent.
According to HSBC India's manufacturing sector expanded at the fastest pace in four months in June driven by improvement in business conditions as well as hiring.
"Together with manufacturing PMI, these numbers suggest that it is hard to build a strong case for policy rate cuts in the near term," Eskesen said.
In its mid-quarter monetary policy review on June 18, RBI chose to leave key interest rates on hold.
The Indian economy is grappling with slow growth and high inflation rate.
India's economic growth rate slowed to a 9-year low in March quarter at 5.3 per cent, and 6.5 per cent for the entire 2011-12 fiscal. The 2011-12 growth was lower than 6.7 per cent seen in 2008-09 amid the height of global financial crisis.
Source: PTI
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