India's services sector expanded for the ninth straight month in July as new orders grew at a steady pace but firms were less optimistic about the future, a business survey showed on Friday.
The HSBC Purchasing Managers' Index for the services sector, which gauges the activity of hundreds of Indian companies, slipped to 54.2 in July from June's 54.3.
The index for the sector, which makes up nearly 60 percent of the Indian economy, has held above the 50 mark that separates growth from contraction, since November last year.
"Service sector activity grew at a steady pace in July, with growth in new orders and employment holding up," said Leif Eskesen, an economist at HSBC.
The survey showed order books grew at the same clip as June, prompting businesses to increase their workforces at a similar pace as in the previous month.
But sagging demand from India's major trading partners abroad - the United States, the euro zone and Britain - dented hopes for the future among Indian companies in July.
The index measuring business expectations, a gauge of what firms think conditions will be like in a year's time, fell to 69.5 from 72.9 in June.
Indian firms are also losing confidence because of the government's inability to push through long-pending policy reforms such as foreign direct investment in the supermarket and airline sectors.
Economic growth which fell to its lowest in almost a decade in the Jan-March quarter. India's economy grew 5.3 percent in the three months to March - a far cry from the near double digit rates before the financial crisis started in 2008.
Faltering economic growth prompted the Reserve Bank of India to leave its repo rate unchanged at 8 percent earlier this week, after cutting it by a more than expected 50 basis points in April, as high inflation remained a concern.
"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.
India's headline inflation rate fell to 7.25 percent on an annual basis in June from 7.55 percent in May but because of a faltering monsoon - key to volatile food prices - that could pick up again.
In its latest projections the central bank also raised inflation forecasts for the fiscal year ending March 2013, expecting the disappointing monsoon to impact prices.
However, suggesting temporary relief, the input prices sub-index of the PMI survey fell to its lowest since October 2011.
A pick-up in prices from here would weaken calls for policy easing to help pull Asia's third largest economy back from a slowdown.
Northern India suffered one of its worst blackouts in history in the past week as power grids across a dozen states collapsed, leaving over half of the country's 1.2 billion population without electricity for days.
The July survey of manufacturing activity showed the sector grew at its weakest pace since last November, hit hard by a fall in export orders and a slump in output.