Sensex closes lower after volatile session, but holds above 21,000

The Sensex fell on Tuesday after two sessions of gains as investors booked profits in recent outperformers such as ONGC and Tata Motors ahead of derivatives expiry later this week.

The expiry of derivatives on Thursday typically sparks volatile trading. This month will also mark the end of the quarter and the calendar year. Markets are closed on Wednesday for the Christmas holiday.

Still, broader sentiment remains underpinned by strong buying by foreign institutional investors even after the Federal Reserve last week announced the start of a reduction in bond purchases.

FIIs bought Rs 135 crore of shares on Monday, according to exchange and regulatory data, bringing their total over the three sessions since the Fed decision to $514.2 million, as global markets have extended gains.

"FIIs are the dominant players and going into the holiday season volumes are likely to remain thin, so we don't expect too much of a movement in the next few days," said Aneesh Srivastava, chief investment officer of IDBI Federal Life Insurance Co Ltd.

"Going into the New Year there would be increased volatility, but our expectation is for interest rate to turn around, which would be a net positive."

The Sensex closed down 0.32 per cent at 21,032.71, after gaining 1.9 per cent in the previous two sessions. The Nifty fell 0.26 per cent to 6,268.40.

Some recent outperforming blue chips fell, with Tata Motors down 0.8 per cent after gaining 2.4 per cent over the previous four sessions.

Oil and Natural Gas Corp (ONGC) fell 1.1 per cent after rallying 5.5 per cent over the previous four sessions.

Shares of Sesa Sterlite, controlled by billionaire Anil Agarwal, closed down 2.28 per cent after India's top investigating agency said it started a probe into possible irregularities in its stake buy in Hindustan Zinc back in 2006.

Hindustan Zinc, in which Agarwal's Vedanta Resources PLC has a 64.9 per cent stake, closed lower 2.15 per cent.

However, among gainers, Infosys, which fell 2.3 per cent on Monday after a top executive resigned, closed higher 0.52 per cent on bargain-buying.

Shares in Apollo Tyres ended up 7.9 per cent after rising to their highest since September 2012 as investors bet the company will drop its $2.5 billion deal to buy U.S.-based Cooper Tire & Rubber Co.

Copyright Thomson Reuters 2013