MUMBAI: Indian shares edged down on Tuesday, led by falls in banking stocks on worries that a widely anticipated U.S. interest rate hike by the Federal Reserve may prompt the Reserve Bank of India to keep key interest rate unchanged for longer.
The RBI kept its key lending rate unchanged on Dec. 1, leaving the door open for more easing but making that dependent on meeting a challenging inflation target for 2017.
Investors have mostly priced in a Fed rate hike this week, with the main question now hinging on how many increases will follow next year.
The U.S. Federal Reserve will move very gradually after it delivers what is widely expected to be its first interest rate hike in nearly a decade on Dec. 16, according to a Reuters poll that points to a tame inflation outlook for next year.
"(RBI) Governor (Raghuram) Rajan will keep an eye on Fed's comments before deciding on the future interest rate trajectory," said Deven Choksey, managing director at K R Choksey Securities.
The broader Nifty was 0.14 percent lower, while the benchmark Sensex fell 0.15 percent.
The Bank Nifty fell 0.6 percent. ICICI Bank fell 2 pct and HDFC Bank dropped 0.5 percent.
Among state-run banks, Punjab National Bank declined 2 percent, while State Bank of India fell 0.6 percent.
Sun Pharmaceutical Industries rose 0.8 percent after the company said it had divested its Ohio unit to Nostrum Labs.