Despite strong macro-economic data, investors remained cautious ahead of the upcoming decision on the US rate hike, and this led a barometer index of the Indian equities to close over 150 points in the red on Tuesday.
Investors were cautious ahead of the upcoming decision by the US Fed to raise or otherwise interest rates.
Even the better-than-expected inflation and modest factory output data, which had cheered investors with hopes of a rate cut by the Reserve Bank of India, did not support buying in the markets.
The barometer 30-scrip sensitive index (Sensex) of the Bombay Stock Exchange (BSE) had gained 246.49 points or 0.96 percent on Monday after inflation data points such as wholesale price index (WPI) and consumer price index (CPI) were released.
But on Tuesday, the S&P BSE Sensex, which opened at 25,908.34 points, closed at 25,705.93 points -- down 150.77 points or 0.58 percent from the previous day's close at 25,856.70 points.
The wider 50-scrip Nifty of the National Stock Exchange (NSE) also fell by 43.15 points or 0.55 percent to close at 7,829.10 points.
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The Sensex touched a high of 25,909.83 points and a low of 25,649.37 points in the intra-day trade.
Analysts said the investors were chary of chasing higher prices ahead of the US Fed decision on interest rates.
"Despite the healthy inflation and factory output data and hopes of a rate cut by the apex bank, investors seemed to be reluctant to chase prices," Anand James, co-head, technical research desk with Geojit BNP Paribas Financial Services, told IANS.
India's annual inflation rate based on wholesale prices continued in the negative territory in August, falling to (-)4.95 percent from (-)4.05 percent in July.
Another key macro indicator showed that India's factory output had grown by 4.2 percent in July against a marginal rise of 0.9 percent in the like month of last year.
India's consumer price inflation for August eased slightly to 3.66 percent from 3.69 percent in July and a staggering 7.03 percent during the like month of last year.
India Inc. expects that a better-than-expected Wholesale Price Index (WPI) and Consumer Price Index (CPI) will drastically improve chances of a rate cut during the Reserve Bank of India's monetary policy review slated for September 29.
"The investors' reluctance to chase higher prices was due to caution which prevailed due to the upcoming US Fed's Federal Open Market Committee (FOMC) meet on September 16-17," James elaborated.
High interest rates in the US are expected to lead away the foreign portfolio investors (FPIs) from emerging markets like India. It is also expected to dent business margins as access to capital from the US will become expensive.
It is estimated that the foreign funds and investors have sold around $3 billion since August.
Vaibhav Agrawal, vice president, research, Angel Broking, told IANS that the CPI figures had came in slightly ahead of estimates lowering hopes of a rate cut.
"Asian cues too remained negative with the Chinese markets slipping sharply. We expect market volatility to increase over the coming sessions led by comments from the US Fed and a slew of macro-economic data coming out from Europe and the US," Agrawal cited.
Sector-wise, only fast moving consumer goods (FMCG) and information technology (IT) index out of the 12 indices managed to stay afloat during the day's trade.
The S&P BSE capital goods index plunged by 337.65 points, automobile index plummeted by 294.32 points, bank index receded by 188.28 points, metal index fell by 173.21 points and consumer durables index was lower by 162.90 points.
However, the S&P BSE FMCG index was higher by 60.44 points and IT index inched-up by 3.40 points.
Major Sensex gainers during Tuesday's trade were: Hindustan Unilever, up 1.15 percent at Rs.804.75; Sun Pharma, up 1.11 percent at Rs.866.70; ITC, up 1.09 percent at Rs.316.75; NTPC, up 0.68 percent at Rs.126.40; and Reliance Industries, up 0.52 percent at Rs.867.55.
Major Sensex loosers were: Tata Steel, down 5.08 percent at Rs.229.05; Vedanta, down 4.06 percent at Rs.96.90; Tata Motors, down 3.69 percent at Rs.333.95; Hindalco Industries, down 3.05 percent at Rs.76.30; and Larsen and Toubro (L&T), down 2.92 percent at Rs.1,556.95.
Among the Asian markets, Hong Kong's Hang Seng inched down by 0.49 percent, and China's Shanghai Composite Index lost 3.55 percent. However, Japan's Nikkei inched-up by 0.34 percent.