By Abhishek Vishnoi
MUMBAI (Reuters) - The Nifty declined for a third day on Monday, dragged by Ranbaxy Laboratories Ltd shares which recorded their biggest intra-day fall after an import alert ban from the U.S. drug regulator, while faster-than-expected rise in August inflation also weighed.
India's headline inflation shot to a six-month high in August, driven by a 245 percent annual jump in onion prices, hardening the case for new Reserve Bank of India (RBI) Governor Raghuram Rajan to keep interest rates high at his first policy meeting later this week.
Monday's data is a grim reminder of the economic pressures facing Rajan as he steps in to deal with India's worst economic crisis in more than 20 years.
Also on watch is the U.S. Federal Reserve meeting on September 17-18 when it might decide to taper its bond-purchase programme.
HSBC downgraded Indian shares to "underweight" from "neutral", citing the recent rally and downside risks to growth.
"Markets are looking risky in the sense that the Fed may go ahead with tapering, while policy announcements from RBI cannot happen everyday," said Aneesh Srivastava, chief investment officer of IDBI Federal Life Insurance.
Dollar deposits garnered by banks from Indian investors overseas would be watched closely in the near term, Srivastava added.
The broader Nifty fell 0.17 percent, or 10.05 points, to end at 5,840.55, marking its third consecutive day of fall.
The benchmark BSE Sensex ended 0.05 percent, or 9.71 points higher, at 19,742.47.
Shares in Ranbaxy, India's biggest drugmaker by sales, fell 30.34 percent to mark their lowest close in a month on Monday after a third plant in India was sanctioned with an import alert ban from the U.S. Food and Drug Administration. The ruling also triggered brokerage downgrades.
The company said in an exchange filing it had not received any communication from the FDA on an import ban on its Mohali factory in northern India.
Strides Arcolab Ltd, another Indian drugmaker, fell nearly 4 percent after it said a plant of its unit Agila Specialties Private Ltd had received a warning letter from the FDA after its inspection by the regulator in June.
Technology shares also fell on Monday as the rupee rose over 1 percent to the dollar after news that Lawrence Summers had dropped out of the race to head the Fed, suggesting a more gradual approach to tightening monetary policy.
Tata Consultancy Services Ltd fell 2.6 percent, Infosys Ltd lost 1.1 percent, while HCL Technologies Ltd ended 4.7 percent lower.
Among the gainers, private sector banks rose on value buying. ICICI Bank Ltd rose 3 percent, while HDFC Bank Ltd gained 2.2 percent.
(Editing by Prateek Chatterjee)