By Abhishek Vishnoi
MUMBAI (Reuters) - The BSE Sensex and Nifty fell for a second straight session on Thursday, as oil stocks such as Oil and Natural Gas Corp slumped on worries that higher gas pricing may be allowed only for incremental output while violence in Iraq continued to weigh.
The petroleum ministry has proposed that higher gas price as per the Rangarajan formula could be allowed only for incremental production over and above the current levels, as an alternative to applying the formula unconditionally from July 1, Financial Express reported.
Continued violence in Iraq threatens to further push up global crude oil prices and add to domestic inflationary pressures which could delay any rate cuts.
Brent crude hit a nine-month high near $115 a barrel on concerns heavy fighting in Iraq could limit oil supply from OPEC's second-biggest producer.
"Market is struggling right now as some or the other issues like oil are cropping up. However, I think this will provide a better entry point to investors," said Deven Choksey, managing director at K R Choksey Securities.
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The BSE Sensex fell 0.18 percent, or 44.45 points, to end at 25,201.80 after rising as much as 0.71 percent in the wake of the Federal Reserve's cue that U.S. interest rates will stay low for a while.
The Nifty declined 0.23 percent, or 17.50 points, to end at 7,540.70.
Both the indexes had earlier dropped to their lowest level since June 16.
The BSE oil and gas index slumped 3.1 percent, marking its biggest single-day percentage fall since May 20.
Oil and Natural Gas Corp slumped 5 percent while Oil India ended 5.7 percent lower.
Among private oil and gas producers, Reliance Industries fell 2.3 percent while Cairn India lost 1.2 percent.
Continued violence in Iraq also weighed on oil refiners. Bharat Petroleum Corp Ltd ended down 4.6 percent, Hindustan Petroleum Corp fell 3.2 percent, and Indian Oil Corp lost 2.5 percent.
Shares of companies in which the government might go for divestment also fell. Coal India ended down 2.3 percent while National Aluminium Co Ltd lost 2.6 percent.
However, Tata Motors DVR (differential voting rights) shares TAMdv.NS jumped 6.9 percent after a newspaper reported that the company may issue fresh American Depository Receipts (ADR) with a DVR component, citing sources.
"We will share the details once finalised at an appropriate time," a Tata Motors spokeswoman said in a statement, without elaborating.
(Additional reporting by Indulal PM; Editing by Subhranshu Sahu)