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Indian indices extended mixed reaction on Monday with the Nifty declining for the third straight day as the faster-than-expected rise in August inflation erased early gains. The Nifty had risen almost over a per cent in the morning on the news of former Treasury Secretary Lawrence Summers pulled out of the race to be Federal Reserve chief. It is perceived that Summers, who was among the front runners to replace Chairman Ben S. Bernanke when his term ends in January, would cut the monetary stimulus aggressively.
But, the Nifty slipped soon after following disappointing inflation data. The index recovered mid-way through the day after European shares opened firm.
BSE’s Sensex rose 9.7 points to close at 19,742.47. NSE’s Nifty dropped 10.05 points or 0.17% to end at 5,840.55, of the day’s high of 5,957.25 and low of 5,798.15.
India's headline inflation shot to a six-month high in August, driven by a 245% annual jump in onion prices, hardening the case for new central bank Governor Raghuram Rajan to keep interest rates high at his first policy meeting later this week.
HSBC downgraded Indian shares to "underweight" from "neutral", citing the recent rally and downside risks to growth.
Monday's data is a grim reminder of the economic pressures facing Rajan as he steps in to deal with India's worst economic crisis in more than 20 years.
Also on watch is the U.S. Federal Reserve meeting on Sept. 17-18 when it might decide to taper its bond-purchase programme.
"Markets are looking risky in the sense that the Fed may go ahead with tapering, while policy announcements from RBI cannot happen everyday," said Aneesh Srivastava, chief investment officer of IDBI Federal Life Insurance.
Dollar deposits garnered by banks from Indian investors overseas would be watched closely in the near term, Srivastava added.
Shares in Ranbaxy, India's biggest drugmaker by sales, fell 30.34% to mark their lowest close in a month on Monday after a third plant in India was sanctioned with an import alert ban from the U.S. Food and Drug Administration. The ruling also triggered brokerage downgrades.
The company said in an exchange filing it had not received any communication from the FDA on an import ban on its Mohali factory in northern India.
Strides Arcolab Ltd, another Indian drugmaker, fell nearly 4% after it said a plant of its unit Agila Specialties Private Ltd had received a warning letter from the FDA after its inspection by the regulator in June.
Technology shares also fell on Monday as the rupee rose over 1% to the dollar after news that Lawrence Summers had dropped out of the race to head the Fed, suggesting a more gradual approach to tightening monetary policy.
Tata Consultancy Services Ltd fell 2.6%, Infosys Ltd lost 1.1%, while HCL Technologies Ltd ended 4.7% lower.
