Sensex edges lower on caution ahead of RBI policy review

By Abhishek Vishnoi

MUMBAI (Reuters) - The BSE Sensex fell on Monday as rate-sensitive firms such as ICICI Bank Ltd felt the pinch a day ahead of the Reserve Bank of India's policy review, but exporters such as IT firms and drugmakers cashed in on the rupee's weakness.

The RBI is widely expected to keep interest rates on hold on Tuesday, with the focus expected to be on the tone of its policy statement as Governor Raghuram Rajan has reiterated his commitment to tame inflation.

Adding to the caution, foreign investors were net sellers for four consecutive sessions, totalling over $500 million, according to exchange data, their biggest selling streak since May.

"Governor Rajan is not in a hurry to cut rates but the RBI has nearly nine months or so before the Fed raises rates. During this period the central bank is expected to use proactive measures to loosen rates and let the economy stabilise," said Deven Choksey, managing director at KR Choksey Securities.

Concerns about earlier-than-expected U.S. rate hikes are expected to increase after an upward revision to U.S. economic growth estimates in the second quarter, while political unrest in Hong Kong could weigh on regional shares.

The benchmark BSE Sensex ended down 0.11 percent, or 29.21 points, at 26,597.11, a fourth session of fall in five.

The broader Nifty lost 0.12 percent, or 9.95 points, to close at 7,958.90.

Interest rate sensitive stocks led the declines. The tone of RBI's statement could be important in setting expectations about when the central bank would lower interest rates.

For now, analysts do not expect a rate cut until the April-June quarter.

ICICI Bank lost 1.3 percent, HDFC Bank fell 0.8 percent, Kotak Mahindra Bank closed down 2.1 percent, while Axis Bank was 0.9 percent lower.

Among the other major losers, automaker Maruti Suzuki India declined 1 percent, while Hero MotoCorp fell 1.3 percent.

Real estate developer DLF Ltd ended 2.6 percent lower.

Exporters rose on hopes a weak rupee would boost their profits.

Sun Pharmaceutical Industries rose 3.6 percent, while Tata Consultancy Services Ltd ended higher 3.1 percent.

Strides Arcolab Ltd surged 9 percent after the company said it had agreed to buy smaller rival Shasun Pharmaceuticals Ltd in an all-stock deal, and on news that a special dividend would be considered at a board meet on Oct. 7.

Travel companies also gained after Prime Minister Narendra Modi said in New York on Sunday that India would allow visas on arrival for U.S. citizens, boosting expectations of a rise in profits for the sector. Cox & Kings surged 10.9 percent, Thomas Cook (India) jumped 5.5 percent, while Mahindra Holidays and Resorts gained 7.4 percent.

(Editing by Prateek Chatterjee)