Indian shares fell more than 1 percent on Friday after stronger-than-expected consumer inflation data raised the prospect the central bank would keep interest rates on hold, sending lenders such as State Bank of India sharply lower. The broader NSE index closed 1.08 percent lower at 7,814.90, while the benchmark BSE index ended down 1.17 percent at 25,489.57. But both indexes posted their first weekly gain in three, on earnings results which have so far proven resilient. Both indexes gained 1 percent for the week.
SBI shares fell 1.9 percent on Friday. in April, but pinned another rate cut on inflation trends even as separate data released on Thursday showed a struggling economy with industrial output rising much less than expected. The central bank holds its next policy review on June 7. Banks were further hit after the RBI said on Thursday the sector would have to make higher provisions for lending to large corporate borrowers above a certain level.
"If inflation remains elevated then RBI's rate cut could get postponed, but on the other hand IIP (industrial output) numbers are soft and typically in such a scenario you would expect the RBI to cut rates. So policy outlook is concerning markets," said Deepak Jasani, head of retail research at HDFC Securities. During midday, the broader NSE index was down 1.3 percent at 7,797.42 as of 0716 GMT, while the benchmark BSE index was 1.28 percent lower at 25,460.13. But both indexes were still set to post their first weekly gain in three, on earnings results which have so far proven resilient. The NSE index was on track for a gain of 0.9 percent.