Banking and realty sector stocks, which are sensitive to interest rates, declined along with metal and capital goods counters. Sensex heavyweights that fell included ICICI Bank, HDFC Bank, Bharat Heavy Electricals Ltd (BHEL) and Tata Steel.
The 30-share index resumed on a positive note and touched a high of 19,981.57 on an initial rally in Asian stocks. Profit-booking in select counters led the index lower to settle at 19,727.27, a fall of 166.58 points or 0.84 per cent -- the lowest level since closing at 19,270.06 on September 6.
The Sensex lost 536.44 points, or 2.65 per cent over the past five trading sessions, the first weekly drop in five.
The 50-share CNX Nifty index on the NSE dropped 49.05 points, or 0.83 per cent, to 5,833.20. The SX40 index on the MCX Stock Exchange closed at 11,740.84, down 38.32 points.
Raghuram Rajan, who was in Frankfurt to receive the Deutsche Bank prize for Financial Economics 2013, said there is still some inflation in India after stripping out the effects of food and energy and other factors are also driving prices higher.
Asked about the RBI's policy stance, Raghuram Rajan said, "At this point we are neutral, we will see how things develop."
The Raghuram Rajan raised the repo rate last week, saying it was needed to bring down inflation to more tolerable levels.
"Markets were negatively surprised last week by the 25 bps repo rate hike by the RBI," said Dipen Shah, head of the Private Client Group Research at Kotak Securities. "Consequently, most of the banking and other interest rate sensitive stocks under-performed for the week."
Foreign institutional investors bought a net Rs 172.15 crore of shares yesterday, according to provisional data from the stock exchanges.
In other Asian markets, key indices in China, Hong Kong, Singapore, South Korea and Taiwan closed higher while Japan closed lower. US jobless claims unexpectedly fell and Japan's inflation accelerated to the fastest pace since 2008. European markets were lower in early trade as investors awaited a report on economic confidence in the euro area. Key indices in the UK, France and Germany were down.
In the domestic market, 24 Sensex shares ended lower, led by BHEL (4.29 pc), Tata Steel (3.89 pc), Bharti Airtel (2.84 pc), Hindalco Industries (2.73 pc) and ICICI Bank (2.31 pc).
The gainers included Hero MotoCorp, which firmed up 1.64 pc, Sun Pharma 1.45 pc and Coal India 1.12 pc.
Among the sectoral indices, S&P BSE-Bankex dropped 1.83 pc, followed by S&P BSE-Metal 1.61 pc, S&P BSE-Realty 1.48 pc and S&P BSE-Capital Goods 1.42 pc.
The market breadth turned negative as 1,227 stocks ended lower, 1,147 stocks gained and 129 were unchanged. Total market turnover rose to Rs 1,799.52 crore from Rs 1,602.55 crore yesterday.
Markets Outlook by Dipen Shah, Head- Private Client Group Research, Kotak Securities:
Markets ended the week on a weak note, falling by about 1% on Friday. Markets were negatively surprised last week by the 25bps repo rate hike by the RBI. Consequently, most of the banking and other interest rate sensitive stocks under-performed for the week. Going ahead, there are no major macro events domestically. Quarterly results will start pouring in in 2 weeks time. Going by the macro trends, results of domestically oriented companies are expected to remain subdued. Markets will also watch closely the developments on the US debt ceiling issue. While it is widely expected that, more time will be borrowed to discuss the spending cuts, concerns may linger on the potential impact of any spending cuts on the US economy.
Sensex down 167 pts to 3-week low as rate hike fears resurface
(Reuters) The BSE Sensex fell on Friday, led by a decline in bank shares as RBI chief Raghuram Rajan's comments on inflation being still high were seen weighing on market sentiment.
The BSE Sensex was down 166 points , while the broader NSE Nifty fell 50.
Markets were also cautious ahead of June-quarter current account deficit (CAD) numbers due Monday, with economists expecting the gap to be higher than the March quarter's $18.1 billion, given the sharp rise in trade deficit and lower remittances during the period.
However, shares in Bharat Petroleum Corporation Ltd (BPCL) gained 6.1 percent and Videocon Industries Ltd was up 4.8 percent after a drilling campaign off Brazil's northeastern coast showed an area controlled by Petrobras and the Indian companies likely holds more than a billion barrels of oil.