MUMBAI (Dow Jones)--Indian shares traded choppy before ending flat Monday, not reacting much to the Reserve Bank of India's move to increase its key policy rates late Friday.
Cues from Asian markets were also subdued with investors staying on the sidelines ahead of the Independence Day holiday in the U.S.
The Bombay Stock Exchange's Sensitive Index lost 19.51 points, or 0.1%, to close at 17,441.44. The index, which slipped 0.7% last week, moved in a narrow 17,423.74-17,505.73 band during the session. On the National Stock Exchange, the 50-stock S&P CNX Nifty also ended flat, slipping just 1.20 points to 5235.90.
However, trading volume on the BSE dropped to INR28.51 billion, from INR45.55 billion Friday as investor participation was low after transport services in Mumbai were disrupted due to a nationwide strike called by opposition political parties to protest the recent hike in fuel prices by the federal government.
Gainers outnumbered decliners 1,614 to 1,238, while 119 stocks were unchanged.
A technical analysis by Dow Jones Newswires tips the Sensex between 16,900 and 17,800 this week.
"Volumes have been impacted (by the strike). Funds have not been active in the market," said Deven Choksey, managing director, K.R. Choksey Shares & Securities.
India's central bank late Friday raised its key policy rates by 25 basis points for the third time this year in an unscheduled move, accelerating its monetary tightening, and indicated that it is open to take further steps to tame rising prices. Post the hike, its borrowing rate, or the reverse repurchase rate, stands at 4.00% and its lending rate, or the repurchase rate, at 5.50%.
But economists call for further monetary tightening as the country is faced with double-digit inflation levels.
In a note to clients, HSBC said the rate hike was "a step in the right direction" and that it expects the RBI to increase rates by at least another 25 basis points at its July 27 policy review meeting. It added that inflation "isn't coming down quickly enough for officials to let down their guard."
Choksey said the rate hike "just came in a bit early," although it was widely expected. "We are in a yo-yo kind of a market now. It is unlikely that the market will move in either direction convincingly."
He added that while the uncertainty surrounding the global markets is keeping a lid on Indian shares, a recovery in the domestic economy has been providing a cushion against a downside.
Stocks on the Sensex traded mixed across sectors, with 18 of the 30 index constituents ending lower.
Despite the interest-rate hike, financial stocks were mostly higher. State Bank of India, which shed 1.6% last week, rose 0.3% to INR2,272.60, while private-sector lender ICICI Bank added 0.1% to INR841 after losing 2.0% last week.
Metals mostly fell with aluminum producer Hindalco Industries down 1.7% at INR141.60 and Tata Steel falling 0.7% to INR471.50.
Reliance Communications, which outperformed the Sensex by over 18% in the past one month, lost 2.9% at INR185.60 on profit-booking. However, Bharti Airtel gained 0.8% to INR267.
Among others, utility vehicles maker Mahindra & Mahindra rose 1.3% to INR610.30, but car maker Maruti Suzuki India fell 0.9% to INR1,395.05. Oil & Natural Gas Corp. slipped 1.5% to INR1,286.10 after gaining more than 10% in the past one month.
Beyond the Sensex, shares of Reliance Natural Resources, part of the Anil Dhirubhai Ambani group, tanked 27.3% to end at INR46.30 after the firm Sunday said it will merge with group company Reliance Power in a deal under which one share of Reliance Power will be exchanged for every four shares of Reliance Natural.
Reliance Power, which is also not a Sensex component, closed up 3.6% at INR181.40.
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