The headline seasonally adjusted Nikkei India Composite PMI Output Index, that maps both the manufacturing and services sectors, rose from 53.3 in June to 54.1 in July.
However, predictions that economic conditions will normalise after the elections underpinned optimism regarding the outlook and supported a stronger upturn in employment.
TCS was the top gainer in the Sensex pack, rising around 2 per cent, followed by ONGC, SBI, L&T, Infosys, HCL Tech, ICICI Bank and Axis Bank. The broader NSE Nifty surged hit a record high of 14,109.40.
The seasonally adjusted Nikkei India Services Business Activity Index fell to 50.2 in May, from 51.0 in April, pointing to the slowest growth rate in the current 12-month stretch of expansion.
On the job front, Indian service providers continued to add to their payrolls and the sector witnessed the second-strongest increase in employment since March 2011.
The survey noted that advertising campaigns supported the increase in new work growth in the sector amid competitive pressures.
While manufacturing firms cut jobs for the first time in 20 months to sharply reduce costs, services providers continued their hiring spree.
The Nikkei India Services PMI posted above the critical 50.0 level, which separates growth from contraction, for the fourth month running in May.
The improvement in business conditions promoted job creation, while confidence towards the year-ahead outlook for activity was at a four-month high during March.
Business confidence remained positive in August and was driven by upbeat forecasts of sales, an expected improvement in demand and promotional activities
The Nikkei India Services Purchasing Managers' Index (PMI), which tracks services sector firms on a monthly basis, stood at 48.7 in January, as against 46.8 in December 2016.
The services sector had slipped into contraction in July as confusion caused by the GST rollout triggered a dip in new business orders.
Firms seem to have adopted a wait-and-see approach on their plans until public policies become clearer upon the formation of a government.
Reflecting a loss of "growth momentum", manufacturing activities in the country slowed down to a six-month low in March amid softer increases in new orders, production and employment, according to a survey.
With factory production, activities across the private sector saw the biggest drop in over three years
Currency scarcity weighed on manufacturing performance where growth of new work flows slowed
This is the 22nd consecutive month that the manufacturing PMI has remained above the 50-point mark.
The Nikkei India Services Purchasing Managers' Index, which tracks the services sector firms on a monthly basis, stood at 50.3 in February, up from 48.7 registered in January.
The Nikkei India Services Purchasing Managers' Index, which tracks services sector companies on a monthly basis, stood at 52 in September, down from August's 43-month high of 54.7, pointing to a slower and moderate rate of expansion.
In the Sensex pack, Tata Motors was the biggest loser, shedding 3.29 per cent, followed by ICICI Bank, IndusInd Bank, Infosys, HCL Tech, Axis Bank, TCS, HUL, Asian Paints, Sun Pharma, SBI, Tata Steel and NTPC, which dropped up to 3.23 per cent.
A reading below 50 means contraction in the sector.
On the price front, Indian manufacturing companies continued to face higher input costs during August.
The 50-issue NSE Nifty too cracked below the 10,400-mark and hit a low of 10,323.90 before finishing 99.50 points, or 0.95 per cent down at 10,358.85.
According to Japanese financial services major Nomura, India's manufacturing PMI remained in the expansion zone but suggested some consolidation after the rapid ramp up of activity in December.
A reading above 50 means the sector is expanding, while a reading below 50 means contraction.
This is the 14th consecutive month that the manufacturing PMI remained above the 50-point mark. In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction.
The NSE Nifty, however, ended a shade higher by 6.65 points or 0.06 per cent at 10,442.20
The Nikkei India Manufacturing Purchasing Managers Index (PMI), fell from 52.1 in February to a five-month low of 51.0 in March, indicating the slowest improvement in operating conditions recorded by the survey since last October.
Losses largely came from the metal index, followed by power, infrastructure, realty, PSU, oil and gas, capital goods, FMCG, healthcare, auto and banking.
This is the ninth consecutive month that the manufacturing PMI remained above the 50-point-mark.
The biggest losers in the Sensex pack were Vedanta, Tata Steel, M&M, Tata Motors, Maruti, Hero MotoCorp, PowerGrid, Bharti Airtel, SBI and Coal India -- falling up to 4.48 per cent.
The NSE Nifty gained 77.85 points, or 0.71 per cent, to finish at 11,008.30. Intra-day, it shuttled between 10,821.55 and 11,035.65.
On the other hand, jobs increased for the 10th straight month in the manufacturing sector, albeit only slightly
The broader NSE Nifty rose nearly 124 points to settle just below the psychological 11,000 level.
The Nikkei India Manufacturing Purchasing Managers' Index (PMI) stood at 47.9 in July, down from 50.9 in June, its lowest mark since February 2009, and highlighted the first deterioration in business conditions in 2017 so far.
Market sentiment suffered a jolt after other Asian markets closed with widespread losses and European markets dropped in early trade
'We expect the Reserve Bank of India to deliver a 25 bps rate cut in April to support growth.'
The BSE 30-share index after a positive opening stretched to 31,772.41, but could not stay there for long buffeted by the selling pressure. It hit a low of 31,562.25 before settling lower by 79.68 points, or 0.25 per cent, at 31,592.03.
The upcoming corporate results season and the approaching Union Budget kept investors on their toes
A reading above 50 represents expansion while one below means contraction.
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