The headline HSBC Services Business Activity Index was at a 17-month peak of 54.4 in June rising from a modest 50.2 in May, HSBC said adding that "the Narendra Modi wave has struck the service sector".
A reading above 50 shows that the sector is expanding, while a reading below 50 depicts that the output in the sector is contracting.
"After months of subdued activity, the Modi wave has struck the service sector and lifted growth to a 17-month high," HSBC Co-Head of Asian Economic Research, Frederic Neumann, said.
Moreover, optimism regarding the output levels in the services sector for the next 12 months remained positive in June, owing to factors such as end of the elections, planned increases in marketing budgets, forecasts of stronger demand and ongoing improvements in India's economy.
Meanwhile, the HSBC India Composite Output Index, which maps both services and manufacturing, rose to a 16-month high of 53.8 in June, up from 50.7 in the prior month.
"New business flows and stronger business sentiment supported the rise. Some of this is simply pent up demand being unleashed," Neumann added.
He further said faster reforms due to political stability should fuel the growth momentum further. However, tensions in the Middle East and below normal monsoon remain the main concern areas.
"Be sure to expect some bumps along the way, as tensions in the Middle East and the absence of monsoon clouds play spoil sport," Neumann said.
According to Met department forecast, India is expected to receive below normal monsoon rainfall. This is being attributed to El-Nino conditions, whose chances of occurrence are forecast to be high.
Monsoon is crucial for the Indian economy, especially for the agriculture sector which is largely rain-fed.
The HSBC Services Business Activity Index averaged 51.1 in the second quarter of 2014, an improvement from Q1's average of 48.2 and the highest quarterly reading since Q2 2013.
Evidence from survey participants pointed to stronger new business inflows and better economic conditions, HSBC said.
India services sector growth hits 17-month high in June: HSBC Services PMI
(Reuters) Activity in India's services sector grew at its fastest pace in well over a year in June as new business poured in, adding to signs of a pick-up in the economy even as inflation remains high, a survey showed on Thursday.
The HSBC Services Purchasing Managers' Index (PMI), compiled by Markit, jumped to a 17-month high of 54.4 in June from 50.2 in May.
That was the biggest one-month rise in the index in four years. Before May, the services PMI had been stuck below 50, which divides growth from contraction, for almost a year.
The data supports growing optimism among Indian firms that the new government led by Prime Minister Narendra Modi will push through reforms after years of policy paralysis.
India's benchmark BSE Sensex equity index has been hitting record highs on hopes that those reforms will be pushed through by the majority government, India's first in three decades.
"After months of subdued activity, the Narendra Modi wave has struck the service sector and lifted growth to a 17-month high," said Frederic Neumann, co-head of Asian Economic Research at HSBC.
"New business flows and stronger business sentiment supported the rise. As we move along, faster reforms due to political stability should fuel the momentum."
The new orders sub-index jumped to 54.3 in June, the highest since February last year.
The PMI data also showed input prices rose at the fastest pace in five months, but firms passed only a small portion of those costs to consumers.
"Be sure to expect bumps along the way, as tensions in the Middle East and the absence of monsoon clouds play spoil sport," Neumann added.
A similar business survey on Tuesday showed Indian manufacturing activity grew at its fastest pace in four months in June, while the output prices index rose to an eight-month high, suggesting inflation could accelerate further and compound the challenges facing the Reserve Bank of India.
The RBI has hiked rates three times since Raghuram Rajan took over as governor last September to tackle high inflation, even as economic growth slowed to decade-lows.