India's services sector recorded its slowest growth in 18 months as the economic slowdown in the U.S. and Europe resulted in a slump in new orders, according to the latest HSBC Services Purchasing Managers’ Index released on Monday.

HSBC India Services PMI – an index of Indian service sector activity – fell to 50.7 in April from a 51.4 recorded in March. The dramatic deceleration in the services sector for the third straight month -- after touching an 18-month high in January -- indicates a downturn in the economy. However, the index remained above 50 points, indicating growth since November 2011. Any reading below the 50-point mark in the index signals a contraction.

The index for the services sector, which constitutes nearly 60 percent of the Indian economy, is measured based on a survey of 400 companies.

"Activity in the service sector decelerated further in April led by slower growth in new business. This led to a slowdown in employment growth and allowed businesses to better keep pace with their order books,” Leif Eskesen, an economist with HSBC, said.

The data depicts a decrease in new orders as the slowdown in the euro zone – its main trading partner – dampened the demand for Indian services.

New business orders placed with services and manufacturing companies in the country rose at a modest rate in April as power cuts, extreme weather and challenging market conditions hampered the expansion of activity, the survey showed.

The pace of job creation also slowed down reflecting the trend. Apparently, the rate of job creation was modest and the slowest in the current 14-month sequence of hiring, the data showed.

The weak Services PMI was reported after a disappointing manufacturing activity showed that India’s manufacturing sector grew at its slowest pace in four years, according to data released by a separate HSBC-Markit survey last week.

The input prices in the services sector rose in April for the 49th successive month, but rate of cost inflation was the slowest since November 2009, in line with a moderation in the country’s inflation.

“Encouragingly, inflation pressures eased further, which has allowed the RBI to focus more on growth risks,” Eskesen added.

Easing in inflation had prompted its central bank, the Reserve Bank of India, to reduce the repo rates by 25 basis points last Friday. However, the bank made it clear there's little room for further rate cuts this year.

The output growth optimism among businesses remained positive in the short term as the degree of positive sentiment was little changed from March and continued to remain strong.

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