The Nikkei India Services PMI posted above the critical 50.0 level, which separates growth from contraction, for the fourth month running in May.
Forex traders said a stronger dollar also dragged the rupee down.
It indicates that the economy has remained frail at the start of the new fiscal year.
The HSBC Emerging Markets Index, a monthly indicator derived from the PMI surveys stood at 52.6 in March, little unchanged from the February reading when it stood at 52.4, indicating a subdued rate of economic growth in global emerging markets.
Inflation in India probably edged up in October as food prices climbed while weak demand is expected to have hurt factory output growth.
India's services sector activity expanded at a slower pace in December as rates of growth in sales eased to a three-month low and staff hiring came to a halt amid weak business optimism, a monthly survey said on Wednesday. The seasonally adjusted India Services Business Activity Index fell from 53.7 in November to 52.3 in December. The index was above the critical 50 mark that separates growth from contraction for the third month in a row during December, but pointed to the slowest pace of expansion in the three-month sequence.
Earnings growth is unlikely to see much recovery and sales revenues are also likely to remain muted
Sentiments turned somewhat weak towards the middle of the session as profit-booking emerged as investors turned cautious on disappointing quarterly earnings by some bluechip companies
The index has remained above the 50-mark, below which it indicates contraction, for more than three years now.
RBI policy, macro data, company earnings to decide market course this week: Experts
Business confidence remained positive in August and was driven by upbeat forecasts of sales, an expected improvement in demand and promotional activities
Leading indicators suggest economic activity has been disrupted after demonetisation.
Dietician Komal Jethmalani provides expert help.
The Chinese economy is headed for troubled waters, with its manufacturing sector shrinking in November for the first time in nearly three years, in a fresh sign of a further economic slowdown that may prompt it to loosen its monetary policy.
The recovery in the Indian services sector was sustained in November as new work orders supported business activity growth and the first rise in employment in nine months, a monthly survey said on Thursday.
On the macroeconomic data front, PMI data on manufacturing and services sector will also influence trading
The S&P BSE Sensex shed 112 points to close at 27,167 and the Nifty50 dropped 35 points to finish at 8,336.
Dietician Komal Jethmalani provides expert help.
The breadth, indicating strength of the market was strong
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The HSBC Emerging Markets Index, a monthly indicator derived from the PMI surveys, continued its upward trajectory in November on the back of faster manufacturing growth.
Factory growth picked up in May.
Sluggish rise in new business inflows and a cautious approach to costs reportedly led Indian manufacturers to shed jobs in September.
India's services sector activity surged to a seven-year high in January driven by sharp increase in new business orders, leading to job creation and business optimism amid favourable market conditions, a monthly survey said on Wednesday. The IHS Markit India Services Business Activity Index rose from 53.3 in December to 55.5 in January, signalling the strongest upturn in output in seven years.
NSE Nifty finished higher by 46.05 points, or 0.39 per cent, at 11,707.90. Asian Paints was the top gainer in the Sensex pack, rallying 6.32 per cent, followed by Nestle India, HUL, Bajaj Auto, IndusInd Bank, Tata Steel, Maruti and PowerGrid.
In the broader market, the S&P BSE Midcap and the S&P BSE Smallcap indices added 0.6% and 1.3%, respectively to touch their fresh lifetime highs.
Finance Minister Nirmala Sitharaman had in May announced that there will be a maximum of four public sector companies in strategic sectors, and state-owned firms in other segments will eventually be privatised.
Chinese shares opened lower, with the Shanghai Composite Index down 1.8% and the CSI300 index down 2.2%.
The Nikkei India Manufacturing PMI dipped from 50.3 in November to 49.1 in December.
The S&P BSE Sensex gained 122 points to end at 26,525.
The Nikkei Markit India Manufacturing Purchasing Managers' Index (PMI) -- an indicator of manufacturing activity -- declined from 52.5 in April to a three-month low of 51.6 in May.
Marking its quickest rise in over seven years, India's services sector activity expanded for the fifth successive month in February, tracking spike in business orders, renewed export demand and strengthening business confidence, a monthly survey showed on Wednesday. The IHS Markit India Services Business Activity Index rose from 55.5 in January to 57.5 in February. This is the fastest expansion in services output since January 2013.
The HSBC Emerging Markets Index, a monthly indicator derived from the PMI surveys, remained only just above the neutral threshold of 50.0 in September, signalling muted output growth in emerging markets.
Experts said the slowdown could be attributed to adjustments leading to destocking and the offering of discounts by companies as the government ushered in the new indirect taxation system on July 1.
The recovery in manufacturing is still likely to prove "protracted" given the lingering structural constraints.
BSE Bankex and Telecom indices led the fall.
"Any lingering concern that India's manufacturing recovery was tailing off should be put off. A second consecutive rise in PMI has taken the series to a new cycle high consistent on double digit rise in industrial production," said Robert Prior Wandesforde, senior asian economist, HSBC.
The department for promotion of industry and internal trade has asked the telecom department and State-owned BSNL to put on hold the tender for setting up 4G network, valued at Rs 9,000 crore, after allegations emerged that the tender favoured foreign companies. The tender was floated by BSNL in March under the new management for setting up the 4G network.
Large investors track high-frequency data that is immediately available today. That data has been bullish, points out Debashis Basu.
Finance Minister Nirmala Sitharaman on Thursday said the Indian economy is witnessing a strong recovery after a long and strict lockdown. Addressing a press conference to announce more stimulus measures to boost growth, she said macro-economic indicators are pointing towards recovery. She noted that COVID-19 active cases have declined from over 10 lakh to 4.89 lakh with case fatality rate (CFR) at 1.47 per cent.
The new orders sub-index, which includes domestic demand as well as orders from abroad, rose to 53.2 in May
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