MUMBAI (NewsRise) -- Indian shares fell Monday as losses in banking stocks offset positive global cues triggered by better-than-expected U.S. employment data.
The BSE Sensex dropped 0.6% to 35,011.89 and the Nifty 50 Index declined 0.6% to 10,628.50 after a volatile day of trading. The fluctuations came as India's Monetary Policy Committee began its three-day meet to decide whether a worsening inflation outlook merits a rate increase.
Lenders ended mostly lower. HDFC Bank fell 3%, Kotak Mahindra Bank and IndusInd Bank declined at least 0.9% each, and State Bank of India declined 1.4%. A BSE index of banks closed 1.4% lower.
Economists are divided over whether the MPC will raise rates by quarter percentage points on Wednesday or wait for more data on core inflation before going for its first interest rate increase in almost four-and-a-half years.
Goldman Sachs said in a note that it expects policy rates to remain unchanged, but the MPC will likely shift to a hawkish stance. While better activity data, higher inflation, and rising crude oil prices all point toward a more hawkish stance, the MPC may prefer to wait for clarity on minimum support price hikes for summer crops, monsoon rains, and more inflation data before embarking on a rate hiking cycle, Goldman said.
The Sensex had climbed to more than 35,550 earlier Monday following an upbeat U.S. jobs report, which prompted a one per cent rally in Wall Street indexes on Friday and lifted the Nikkei Asia300 Index of companies outside Japan by 1.3% on Monday.
Data released on Friday showed that the U.S. economy added higher-than-expected 223,000 jobs last month. In addition to the robust job creation, equities worldwide reacted positively to a further decline in unemployment rate to multiyear lows and better-than-expected growth in average hourly earnings.
Among other major movers on the BSE on Monday, Dr. Reddy's Laboratories climbed 2.9% after the U.S. health regulator completed the audit of the company's plant in India's southern state of Andhra Pradesh without issuing any observations.
Hero MotoCorp ended 0.3% lower. Earlier in the day, India's largest two-wheeler manufacturer had climbed by 1.5% after May sales jumped 11% on-year to 706,365 units.
Steel Authority of India jumped 4.7% to 75.40 rupees. Citibank upgraded the shares to 'neutral' and raised the target price to 83 rupees, saying it expects steel spreads to sustain amid upbeat demand and falling inventories.
Coal India ended 0.67% lower after rising earlier the session. The coal miner reported that production last month increased by 15.7% on-year and off-take climbed by 14%.
Bank of Baroda dropped 4%. India's government is considering merging at least four state-run banks including Bank of Baroda, IDBI Bank, Oriental Bank of Commerce, and Central Bank of India, in its bid to control rising non-performing asset, the Mint newspaper reported. The merger, if its goes through, will put added stress on Bank of Baroda's balance sheet, the largest of the four banks, analysts say. Oriental Bank of Commerce ended 2.5% lower, while Central Bank of India rose 2.4%.
IDBI Bank fell 4.4% after its Managing Director and Chief Executive M.K. Jain was named as the Deputy Governor of the Reserve Bank of India.