I am not using any SOAP rule/service for this. All I am doing is taking XML as input parameter for an activity in a String param, Creating a Page of class Parse-XML rule and Apply-Parse-XML on the same page. I do not see invokeaxis2 activity being invoked in the tracer.
The issue is resolved. This was happening because the activity was truncating the XML which was being accepted as parameter String. Changing the design to send the value from PEGA property itself solved the problem.