Sensex falls in cautious trade ahead of policy review

MUMBAI (Reuters) - The BSE Sensex and Nifty fell on Monday, continuing their retreat from record highs hit last week as lenders extended falls after disappointing earnings, while caution prevailed a day before the central bank's policy review.

Sentiment also weakened after the HSBC Manufacturing Purchasing Managers' Index (PMI) survey showed growth in Indian factory activity slipped in January from December's two-year high.

But traders cited little impact from GDP revision. India revised up its economic growth to 6.9 percent from 4.7 percent in the fiscal year to March 2014 on Friday after the government changed the formula to measure the economy.

 

"We expect volatility to increase in the coming days ahead of the budget. Markets have moved up sharply and so, expect some sort of correction. However, the momentum is not being lost, but it's retarding," said Daljeet S Kohli, head of research at IndiaNivesh.

The benchmark Sensex fell 0.63 percent to 29,000.33. It had risen to 29,844.16 on Friday, hitting a record high for a seventh session out of eight, before closing lower for the day.

The broader Nifty fell 0.56 percent to 8,760 after hitting an all-time high of 8,996.60 in the previous session.

Banking shares extended their falls from Friday after Bank of Baroda increased bad debt provisions, raising concerns about asset quality in the sector.

HDFC Bank was down 1 percent. State Bank of India fell 0.9 percent.

Caution also prevailed ahead of the Reserve Bank of India's policy review. The central bank is expected to keep interest rates on hold after unexpectedly easing monetary policy last month although some analysts expect a potential rate cut.

Among other decliners, Bajaj Auto was down 2.1 percent after its January sales fell 9 percent, lagging expectations of 5.9 percent growth.

However, among the gainers, Adani Enterprises Ltd surged as much as 5.6 percent after the company unveiled a wide-ranging restructuring of its businesses on Friday in a move designed to make it easier for the group to expand its mining, ports and power operations.

(Reporting by Indulal PM; Editing by Anupama Dwivedi)