The benchmark S&P BSE Sensex on Monday erased a strong early start to close just 10 points up after inflation soared to a six-month high, leaving investors concerned the RBI has little room to cut interest rates.
Four of the 13 BSE sectoral indexes gained, led by bank shares, while healthcare, realty and IT stocks fell. ICICI Bank, HDFC Bank and ITC helped the Sensex gain even as TCS, Reliance Industries and Infosys dragged it lower.
The 30-share Sensex opened at 19,977.38, about 245 points higher than the previous close of 19,732.76 and firmed up further to 20,086.43 points. The gains came after Sebi eased investment norms for overseas entities in government debt.
The slide started after inflation data was released, with the index dropping to a low of 19,596.15 before ending at 19,742.47, a gain of 9.71 points or 0.05%.
The CNX Nifty on the National Stock Exchange fell 10.05 points, or 0.17%, to 5,840.55. The SX40 index on the MCX Stock Exchange finished 9.27 points higher at 11,715.45.
Inflation, as measured by the wholesale price index, came in at 6.1% in August compared with 5.79% in July, the highest level since February. The pace of price gains a year earlier was 8.01%, the government said.
"Investors are anticipating this could lead to a rise in interest rates in the near term," said Nidhi Saraswat, senior research analyst at Bonanza Portfolio Ltd.
"Rate-sensitive sectors like realty were down. IT was also down as the rupee rallied to 62.72 against the dollar."
Inflation has been ticking upwards since June, adding to the problems faced by new RBI governor Raghuram Rajan as he prepares for his first policy meeting on September 20. The government has been battling slowing economic growth, widening current account and fiscal deficits and a weaker rupee.
The rupee has regained some lost ground since touching a record low of 68.85 on August 28.
Ranbaxy Laboratories was the worst performer on the BSE on Monday. It fell 30% to Rs 318.85 after the US Food and Drug Administration issued an import alert on drugs produced at its Mohali plant for violation of good manufacturing norms.
Most Asian stocks ended higher after Lawrence Summers withdrew from consideration to be the next US Federal Reserve chairman, paving the way for Janet Yellen, who some investors say may favour a slower reduction in US stimulus.
Key indices in Taiwan, Hong Kong, Singapore and South Korea rose, while China's Shanghai Composite fell. European markets were lower in afternoon trade.
In the domestic market, 12 Sensex shares gained, led by ICICI Bank (3.11%), Bharti Airtel (2.95%), Maruti Suzuki (2.94%), HDFC Bank (2.21%) and Hero MotoCorp (2.09%).
However, BHEL dropped by 4.6%, followed by Sesa Goa 3.62%, Tata Power 2.49%, TCS 2.48% and Cipla 2.3%.
Among the sectoral indices, S&P BSE-Bankex rose by 1.86%, followed by S&P BSE-FMCG 0.38%, S&P BSE-Auto 0.38% and S&P BSE-PSU 0.12%, while S&P BSE-Healthcare fell by 2.47%, S&P BSE-Realty 1.96%, S&P BSE-IT 1.85%, S&P BSE-Teck 1.24% and S&P BSE-Metal 1.05%.
The market breath was negative as 1,244 stocks ended with losses, 1,118 shares finished with gains and 123 were steady.
Foreign institutional investors sold a net Rs 98 crore of shares last Friday, as per provisional data from the stock exchange.