By Ashutosh Joshi 
 

MUMBAI--Indian shares gave up initial gains and ended lower Monday, after measures announced by the country's central bank--aimed at attracting overseas funds--fell short of investors' expectations.

The Bombay Stock Exchange's benchmark Sensitive Index fell 90.35 points, or 0.5%, to 16,882.16. The index traded in a range of 16,853.05 to 17,131.15.

On the National Stock Exchange, the 50-share Nifty slipped 31.40 points, or 0.6%, to 5,114.65.

The market rallied early in the session after Finance Minister Pranab Mukherjee said over the weekend that the government, in consultation with the central bank, will announce a clutch of measures Monday to help revive investor sentiment.

"Expectations had been drummed up that a fairly large set of policy [measures] would be announced, but what had been announced is far below expectations," said Sanjay Sinha, founder of Citrus Advisors, an investment advisory firm.

The Reserve Bank of India raised the foreign investment cap on government bonds by $5 billion and the limit on overseas commercial borrowings by $10 billion, a measure aimed at attracting foreign funds and arresting the sharp slide of the rupee against the U.S. dollar.

The RBI also allowed sovereign wealth funds, multilateral agencies, endowment funds, insurance and pension funds as well as foreign central banks to invest in government bonds.

Citrus Advisors's Mr. Sinha said investors will now wait to know who will be India's next finance minister, after Mr. Mukherjee resigns Tuesday to file his nomination for the presidential election.

"In the medium term the market will react to what will be the policies the new finance minister is able to announce and execute," Mr. Sinha said.

Trading volume at the BSE's cash segment fell to 19.04 billion rupees, compared with Friday's INR20.74 billion.

Twenty-one of the 30 Sensex constituents ended in the red, while one stock--consumer-goods maker Hindustan Unilever--was unchanged.

Banking stocks led the decliners. State Bank of India shed 1.9% to INR2,114.90, ICICI Bank gave up 0.6% to INR847.35, and HDFC Bank fell 1.3% to INR537.25.

Oil & Natural Gas Corp. lost 2.3% to INR272.95, while Hero MotoCorp was the top Sensex loser, giving up 2.7% to finish at INR2,027.75.

Reliance Industries gained 0.7% to INR716.20, while Maruti Suzuki India was the top gainer, rising 1.1% to INR1,113.95.

Write to Ashutosh Joshi at ashutosh.joshi@dowjones.com