By Abhishek Vishnoi
MUMBAI (Reuters) - The BSE Sensex slumped nearly 2 percent on Monday as blue chips were hit by worries about the economy after the Reserve Bank of India (RBI) raised interest rates earlier this month, while concerns about a likely U.S. government shutdown also weighed.
The rate hike by the RBI on September 20 cut short what had been a rally in domestic shares, although the BSE index still managed to gain 4.1 percent in September, its biggest monthly advance since November 2012.
Analysts say the RBI could raise interest rates again to curb inflation even as the Indian economy is growing at its slowest in a decade.
Also, U.S. lawmakers hardened their positions over the weekend, making passage of a stop-gap spending bill for the new fiscal year by midnight on Monday less likely. Government agencies and programmes deemed non-essential will begin closing their doors for the first time in 17 years in the United States.
"Amid global jitters, cement, steel and many other prices have gone up in India so chances of a further hike in rates are more than status quo," said G. Chokkalingam, managing director and chief investment officer at Centrum Wealth Management.
The benchmark BSE index slumped 1.76 percent, or 347.50 points, to end at 19,379.77. The broader NSE index fell 1.68 percent, or 97.90 points, to end at 5,735.30.
Both indexes gained in September.Nifty rose 4.8 percent for the month, helped by foreign buying of more than $2 billion in Indian shares in September, the first net monthly inflows since May, regulatory data showed.
The inflows came after a tough few months in which shares slumped, tracking the rupee that plumbed record lows.
Despite the monthly gains, the BSE index fell 1.8 percent for the July-September quarter.
Banking stocks fell on worries about higher non-performing loans and the possibility of the RBI raising rates one more time with its focus on inflation, dealers said.
ICICI Bank Ltd
Shares in steel companies fell on concerns that a lower-than-expected reading of China's PMI by HSBC may weigh on short-term prospects, dealers said.
Tata Steel Ltd
Multi Commodity Exchange of India Ltd (MCX)
Reliance Infrastructure Ltd
Drugmaker Glenmark Pharmaceuticals Ltd
Tech Mahindra Ltd
(Editing by Prateek Chatterjee)