Sensex, Nifty fall; retail inflation dents rate-cut hopes

MUMBAI (Reuters) - The Sensex and Nifty fell on Tuesday after worse-than-expected retail inflation data dented hopes of an interest rate cut by the RBI next month, while Tata Motors declined on continued worries over slowing sales in China.

Higher food prices pushed retail inflation to an eight-month high in June, government data released on Monday showed, raising concerns that the Reserve Bank of India would have no leeway to cut rates at its policy review in August.

Meanwhile, wholesale prices fell at a faster-than-expected annual rate of 2.4 percent in June, their eighth straight decline, government data released on Tuesday showed.

"People are caught between WPI and CPI," said G Chokkalingam, founder of Equinomics, a Mumbai-based research and fund advisory firm.

"The WPI shows bad sentiment for the industrial economy, (while) CPI shows less optimism on the rigid stance of the RBI on a rate cut," Chokkalingam said.

The BSE index fell 0.13 percent and the NSE index dropped 0.16 percent.

Sentiment was also hit after Credit Suisse downgraded Indian equities to 1 percent "underweight" from 1 percent "overweight" in its Asian portfolio, saying it was a tactical move based on valuations.

Tata Motors fell more than 2 percent after Brilliance China Automotive Holdings issued a profit warning on Monday, stoking fears that a slowdown in China's luxury car market will hurt unit Jaguar Land Rover's sales.

Falls in blue chips also weighed on the Nifty with HDFC down 0.9 percent and ITC lower 0.8 percent.

Banking stocks such as Kotak Mahindra Bank fell 1.2 percent, while ICICI Bank dropped 0.71 percent.

Meanwhile, Dr. Reddy's Laboratories' shares rose 0.75 percent after the company launched a copy of Actavis Plc Alzheimer's drug Namenda, in the United States.

(Reporting by Karen Rebelo in Mumbai; Editing by Subhranshu Sahu)