Sensex falls as crude oil gains spark inflation worry

By Arnab Paul

(Reuters) - Indian shares edged down on Tuesday on investor caution higher global crude oil prices would stoke inflation and impact future interest rate decisions by the country's central bank, with oil marketers and bank stocks weighing on the broader NSE index.

Brent crude oil, the international benchmark for oil prices, jumped above $65 per barrel for the first time since 2015 after the shutdown of the Forties North Sea pipeline knocked out significant supply from a market that was already tightening due to OPEC-led production cuts.

India's central bank last week kept its policy rate steady at 6.00 percent as widely expected, but slightly softened its language on inflation by saying risks were "evenly balanced."

Bond markets took solace that the statement was not as hawkish as some had feared after a recent spike in inflation.

"A sustained rise in crude oil from these levels would pose a risk in terms of imported inflation and its attendant impact on bond yields," said Sunil Sharma, Chief Invetsment Officer at Sanctum Wealth Management.

"However, that's offset by expectations of December-quarter corporate earnings growth in the double-digits and the pattern of earnings growth will be sustained in 2018."

The NSE Nifty was down 0.55 percent at 10,265.65 as of 0542 GMT, after rising about 2.8 percent over the last three sessions. The benchmark BSE Sensex was 0.42 percent lower at 33,316.09.

The Nifty Bank index fell as much as 1 percent after gaining 2.2 percent in the last three sessions. ICICI Bank Ltd and State Bank of India, among the biggest losers, were down as much as 1.2 percent and 1.4 percent, respectively.

Oil marketers Hindustan Petroleum Corporation Ltd, Bharat Petroleum Corporation Ltd and Indian Oil Corp lost as much as 2-3 percent.

However, oil explorers such as Reliance Industries Ltd and Oil and Natural Gas Corporation Ltd climbed between 1.4 percent and 2.3 percent.

Dr. Reddy's Laboratories Ltd rose as much as 6.1 percent after the U.S. FDA issued an audit closure report for one of its manufacturing units.

(Reporting by Arnab Paul; Editing by Biju Dwarakanath)