My grandfather had become ill last month and it became clear he probably wouldn't recover. One day, my mother came to me and told me that he had died in peace and that there would be a funeral next Thursday. I didn't feel moved or surprised by this. How was I supposed to react?
Contrary to what some people will say, the way you are supposed to react is according to how you feel about it. It's not proper to react one way, and improper to react another way. Your reactions are based on your feelings, not on the feelings other have, or think you should have.
How you should behave is a different concept, and one that is culturally variable. Using the tag for Europe does help with that some, though it can vary even in that "region". Family norms will also be a factor.
In general, it's likely to be appreciated by others who have a stronger reaction to the death if you can be helpful and supportive of them at this time. Be there as a good listener when someone wants to express their sorrow at his passing, and provide earnest good will to them. Remember to speak well of him, and his actions in life, even if you have negative thoughts or memories about him. Find things that you can say, that are honest and truthful about him. Such as "I will miss him," or "I enjoyed visiting him." Don't encourage others if they have negative comments, but don't judge them for such if they do express them. You have lost any further opportunities to be with him, so there is something gone from your life as much as from theirs. Recognising that will help you relate to others, and help them when they need it.
Help those most affected, especially his wife and children, by quietly doing things that they may forget to do. Simple things such as pet care and household maintenance can easily be neglected by those in mourning. The more others are suffering and adrift at this time, the more helpful it will be if you are a stable point that they can rely upon.
Find some references for the stages of grief, such as this one, to read, so that you can understand some of how others may feel, and behave.
People want to see that you consider his death to be a loss. So I suppose that the first thing you should say is something about how sad it is that he has die. When you do this, you want to make sure that you say something personal ie. "I will miss him", rather than something impersonal, "Death is always sad" lest it come off as robotic. After that, you should ask about the other person as 1) it shows that you care about them 2) it removes the focus away from you and your lack of feelings. It is also valid to ask for some time by yourself, which would have given you more time to figure out how you should have acted.
I would say that people have no business wondering about your emotional state or grieving process. However, make sure you recognize that this death affected people differently, and act appropriately respectful.
When my grandfather died, I felt similarly. However, my mom was crushed, and I'm afraid I came across as a little insensitive to her and her siblings. If I could go back, I would take the time to sincerely tell everyone "I'm sorry for your loss."