Sensex falls; banks lead losses

By Jessica Kuruthukulangara

Indian shares fell for a second straight session on Thursday as State Bank of India and other lenders extended losses on concerns about the likelihood of further monetary easing by the country's central bank.

The Reserve Bank of India (RBI) on Wednesday cut the repo rate by 25 basis points to 6 percent, a more than 6-1/2 year low, but pinned future action on economic data, disappointing investors who had hoped for signs of more easing ahead.

Hopes of further rate cuts had risen after inflation eased while the economy is growing at its slowest pace in over two years.

A survey earlier on Thursday showed India's service sector activity contracted at its sharpest rate in nearly four years in July after a new nation-wide tax sowed confusion and sent new orders into free fall.

"Bank stocks are down mostly because of lack of clarity from the RBI," said Sudhakar Pattabiraman, head of research operations at William O'Neil India.

"Monsoon seems to be fine, rural fundamentals look strong now and if inflation is a little better than what it has been so far, the RBI would want to hold off on rate cuts for now," he added.

The broader NSE Nifty was down 0.42 percent at 10,038.90 as of 0553 GMT, while the benchmark BSE Sensex was 0.45 percent lower at 32,329.60.

Housing Development Finance Corp, down as much as 1.71 percent, was the biggest drag on both indexes.

The Nifty PSU bank index fell as much as 2.2 percent, marking a third consecutive session of losses.

State Bank of India fell as much as 2 percent, Canara Bank Ltd lost as much as 2.8 percent, while Punjab National Bank dropped nearly 4 percent.

However, the Nifty pharma index gained as much as 1.2 percent, after falling for eight sessions in the last 10, after the Mint newspaper reported the Indian government has proposed to waive clinical trials on proven drugs.

(Reporting by Jessica Kuruthukulangara in Bengaluru; Editing by Sunil Nair)