India's services growth index falls slightly: HSBC

India's services sector growth rate saw a slight fall in July but remained in the positive terrain for the ninth month in a row, amid rise in new orders and employment levels holding up, an HSBC survey says.

The HSBC's services purchasing managers index (PMI) for July stood at 54.2, tad lower from 54.3 in June. Despite a 10 basis points dip, the index has kept above the 50 mark, indicating growth, since November 2011.

"Service sector activity grew at a steady pace in July, with growth in new orders and employment holding up," HSBC Chief Economist for India and ASEAN Leif Eskesen said.

Going forward, a moderation in output is likely as the pace of growth in new orders as also the business sentiment has slumped for the next 12 months.

According to HSBC, though new orders at private sector companies in India rose steeply in July, the pace of increase was lower than that recorded in June.

Besides, even as service providers remained optimistic that activity will rise further over the coming year, the level of sentiment dipped to the lowest since March.

Meanwhile, India's manufacturing sector witnessed a slowdown in July - the weakest growth rate since November - because of moderation in domestic and export orders amid sagging global economy.

Accordingly, the HSBC India Composite Output Index, which maps both services and manufacturing activity, fell to 54.4 in July, down from 55.7 in June -

signalling slowest expansion of output in three months.

HSBC noted that the volume of incoming new work expanded in both sectors surveyed -- services as well as manufacturing -- with services firms signalling a faster increase.

There was also a slight rise in workforces at Indian private sector firms including both manufacturers and service providers during July.

Inflation eased to some extent in July, but remained firm on the back of rising wage costs and solid demand.

Service providers reportedly passed higher cost burdens on to their clients as labour and raw material prices increased, while, manufacturers handled rise in fuel, labour and raw material costs.

"With inflation risks still lingering despite the slowdown and policy action out of Delhi so far insufficient, the RBI has little room to manoeuvre," Eskesen said.

In its quarterly monetary policy review on July 31, the Reserve Bank left key interest rates unchanged on fears of deficient monsoon and high inflation.

The RBI has also lowered the economic growth projection for the current fiscal to 6.5 per cent from its earlier estimate of 7.3 per cent, and has raised inflation forecast for the fiscal ending March, 2013 to 7 per cent, from the earlier projection of 6.5 per cent.