Indian shares fell on Monday, continuing their retreat from record highs hit last week, as blue-chips including Dr.Reddy’s Laboratories extended falls after disappointing earnings, while caution prevailed a day before the RBI’s monetary policy review.

The Reserve Bank of India is expected to keep the interest rates on hold after unexpectedly easing monetary policy last month although some analysts expect a potential rate cut.

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 had revised up its economic growth to 6.9 per cent from 4.7 per cent 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.

Domestic sentiment was also hit on weak global cues as the gauge of China’s factory sector activity raised concerns about the world's second-largest economy.

The benchmark BSE index ended the session down by 60.68 points or 0.21 per cent at 29,122.27. 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 NSE index fell 11.5 points or 0.13 per cent to 8,797.40 after hitting an all-time high of 8,996.60 in the previous session.

Among BSE sectoral indices, FMCG index fell the most by 1.77 per cent, followed by oil & gas 0.54 per cent, metal 0.47 per cent and PSU 0.25 per cent. On the other hand, capital goods index was up 1.25 per cent, followed by 1.00 per cent, consumer durables 0.94 per cent and infrastructure 0.79 per cent.

Major Sensex gainers were Axis Bank 4.82%, Hindalco 4.01%, Wipro 3.08%, L&T 1.95% and GAIL 1.7%, while the top five losers were Bharti Airtel 3.54%, Dr Reddy's 3.04%, HUL 2.63%, ICICI Bank 2.6% and ITC 2.17%.

A report by SMC Investments and Advisors said: "Asian markets fell due to global growth concerns for the fourth consecutive day. The concerns are supported by weak Chinese data. US stocks also declined as earnings estimates revised downward. Economic activity in the US continued to increase in the final three months of 2014, according to the Commerce Department, although the pace of growth slowed by more than economists had expected. The report said US gross domestic product climbed by 2.6 per cent in the fourth quarter following the 5.0 per cent jump seen in the third quarter. Economists' consensus estimate had called for GDP to increase by a somewhat more substantial 3.2 per cent during the quarter.''

Brokers said besides profit-booking and subdued earnings by some companies, a weak trend in other Asian bourses following week-end losses in the US markets in response to disappointing growth data, influenced the trading sentiment here.

Further, cautious approach adopted by retail investors and other participants ahead of RBI’s policy review tomorrow weighed on the sentiments, they said.

European shares stalled and core bond yields held near lows on Monday following disappointing data from China, while Greek markets were volatile as the government pursued efforts to reach a compromise with its creditors.

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