Sensex flat; lingering worries about banknotes hurt risk appetite

By Samantha Kareen Nair

REUTERS - Indian shares swung between gains and losses on Thursday as banks recovered from recent losses, although uncertainty remained about the economic impact of the government's action last week to remove high-value banknotes from circulation.

India announced on Thursday some new measures to ease the cash crunch caused by the move, including allowing farmers to draw money from banks against loans sanctioned to them.

The government's move to withdraw larger denomination banknotes is aimed at cracking down on rampant corruption and counterfeit currency, stoking concerns about its impact on small- and medium-sized enterprises which largely run on cash, which could have a knock-on effect on economic growth.

"Overall, the general market sentiment is down as investors remain wary and we can see some discretionary spending taking place due to demonetisation," said Saurabh Jain, assistant vice-president of research at SMC Global Securities.

"A lot of mixed reaction can be expected from sector-based stocks as we get a clearer picture on who would gain from this (withdrawal of bank notes) move and who would be impacted. While gains on the indexes right now will be short term, one can expect selling to resume soon."

The broader NSE Nifty was down 0.01 percent at 8,111 as of 0515 GMT after rising as much as 0.49 percent earlier in the session.

The benchmark BSE Sensex was 0.03 percent higher at 26,306.42 after climbing as much as 0.57 percent earlier.

Engineering company Bharat Heavy Electricals Ltd rose as much as 2.9 percent after HSBC Global Research raised its rating on the stock to "buy" from "reduce".

The NSE bank index rose as much as 1.15 percent after falling for two straight sessions. Axis Bank gained 1.7 percent while State Bank of India climbed 1.2 percent.

Among the losers, some auto and two-wheeler makers, which are expected to see reduced demand for their products because of the banknote measures, fell with Hero MotoCorp declining 1.4 percent.

Meanwhile, HCL Technologies fell as much as 2.4 percent after rising in the last two sessions. Wipro declined as much as 2.45 percent.

(Reporting by Samantha Kareen Nair in Bengaluru; Editing by Subhranshu Sahu)