India's services sector activity cooled down in September, marking a 10-month low, according to HSBC India Services Business Activity Index released on Friday.

The index fell to 57.7 in September from 60.9 in August, indicating a slower pace of growth despite remaining above the long-term average.In Purchasing Managers' Index (PMI) parlance, a print above 50 means expansion, while a score below 50 denotes contraction.

"While the services sector continued to expand, the pace of growth moderated noticeably in September," said Pranjul Bhandari, chief India Economist at HSBC. "Rising costs, increased competition and shifts in consumer preferences weighed on the sector's performance."

New export orders expanded at the slowest rate in nine months. Firms reported softer demand from international markets.

The September data highlighted solid job creation and the weakest uptick in selling prices in over two-and-a-half years. Business optimism also strengthened.

"Services companies' margins have likely been squeezed further, as prices charged rose at a slower pace when input cost inflation intensified. A long period of robust new business growth has led to strong labour demand," Bhandari said.

Meanwhile, HSBC India Composite Output Index fell to 58.3 in September from 60.7 in August as both factory production and services activity rose at slower rates.

Composite PMI indices are weighted averages of manufacturing and services PMI indices. Weights reflect the relative size of the manufacturing and service sectors.

Despite the loss of growth momentum, private sector employment rose markedly, and business confidence strengthened since August.