The growth in the country's services sector, which makes up for nearly 60 per cent of the country's economic output, witnessed significant pick up in new orders.
Besides, the private sector employment activity also increased for eleventh month running, it said.
The HSBC Services Business Activity Index rose to 57.5 in January, up from 55.6 in December, signalling a sharp expansion
in output, and one that was the fastest since January last year.
"Service sector activity continued to pick up pace led by a faster inflow of new business," HSBC Chief Economist for India & ASEAN Leif Eskesen said.
Growth in activity has how been sustained for 15 successive months in this sector but services firm were a little less optimistic about the outlook for the sector. The the degree of confidence of the services firm was the lowest registered in three months.
Overall, services firms in India remained optimistic regarding activity levels in the upcoming year, with around 42 per cent of services companies predicting overall activity at their units to increase, while just 3 per cent forecasting a decline.
Input prices at private sector companies in India rose for the 46th successive month during January, though the rate of price rise was much weaker than a year ago.
"Inflation readings held broadly steady, with fuel, raw material and labour cost pressures still simmering," Eskesen said adding that "these numbers underscore the need for the RBI to approach policy easing with caution".
The Reserve Bank of India cut interest rates on January 29 for the first time in nine months, in a move to propel economic growth by easing fund flow to perk up consumption and investment demand.
The bank also lowered country's GDP forecast to 5.5 per cent in 2012-13 as against 5.8 per cent estimated earlier.
Earlier, an HSBC survey had shown that the growth of country's manufacturing sector slowed to a three month low in January, primarily due to moderation in new orders and power outages during the month.
Accordingly, the HSBC India Composite Output Index - which maps both the manufacturing and services index – stood at 56.3 in January, unchanged from December's reading.
Services PMI rose to 12-month high in Jan: HSBC
(Reuters) Activity in India's service sector expanded at the fastest pace in a year last month, driven by rising foreign orders, but businesses were a little less optimistic about the future, a survey showed on Tuesday.
The HSBC Markit services Purchasing Managers' Index, which gauges business activity from a survey of over 400 companies ranging from banks to hospitals, jumped to 57.5 in January from 55.6.
The services PMI has held above 50, the level that divides growth and contraction, for over a year, even though India appears set to finish the 2012/13 fiscal year with its slowest economic growth rate in a decade.
Services make up over 60 percent of Asia's third-largest economy. Some of India's top services exports are software, back-office support and banking services. "Service sector activity continued to pick up pace led by a faster inflow of new business," said Leif Eskesen, HSBC's chief economist for India and Southeast Asia, in a release.
The new business sub-index jumped to 58.3, the highest since August 2011, prompting firms to step up the pace of hiring, although not at a very strong rate. Although companies were optimistic about the future, the business expectations index fell slightly from December.
The survey also showed input and output prices rising at a similar pace to the prior month, though much weaker than a year ago.
Wholesale price inflation eased to a three-year low of 7.18 percent in December, giving the Reserve Bank of India room to cut its key lending rate by 25 basis points to 7.75 percent last week.
"Inflation readings held broadly steady, with fuel, raw material and labour cost pressures still simmering. These numbers underscore the need for the RBI to approach policy easing with caution," said HSBC's Eskesen.
The central bank is expected to cut the repo rate by another 75 basis points to 7 percent by September.
Manufacturing activity grew in January at its slowest pace in three months, a similar survey showed last week.