Sensex Falls as Fed Caution Offsets Easing Inflation Data

Mumbai: India's stock markets faltered on Tuesday as caution ahead of the US Federal Reserve interest rate decision continued to weigh on sentiment, offsetting initial slight gains from data showing consumer inflation easing to the lowest on record.

Data late on Monday showed consumer price inflation eased to 3.66 per cent in August from a revised 3.69 per cent a month ago, in line with forecasts.

The data raised expectations the Reserve Bank of India (RBI) would cut interest rates for a fourth time this year at its policy review on September 29. But analysts warn much could depend on the Fed decision due on Thursday.

A call to raise US interest rates could prevent the RBI from cutting its repo rate should global markets react violently, according to analysts.

Foreign investors have already sold a net $995.5 million of Indian shares so far this month, according to data from National Securities Depository Ltd, after selling around $2.6 billion in August - the biggest monthly sales ever.

"There is no positive trigger as of now. The only expectation is keeping the rates unchanged by the U.S. and a possible rate cut in India," Alex Mathews, head of research at Geojit BNP Paribas said.

The BSE Sensex lost 0.4 per cent after earlier gaining as much as 0.2 per cent.

The broader Nifty was down 0.5 per cent after earlier rising as much as 0.1 per cent.

Heavily owned blue chips were among the leading decliners, with Tata Motors Ltd slipping 2.9 per cent and ICICI Bank losing 1.5 per cent.

Meanwhile, Bharat Forge slumped 5.8 per cent after Bank of America-Merrill Lynch lowered its target price on the stock to Rs 900 from Rs 1,080, citing concerns over non-auto export growth.

Bucking the trend, Maruti Suzuki shares rose 1.1 per cent after the RBI said foreign institutional investors could invest up to 40 per cent of the paid up capital of the company.