MUMBAI: Indian shares slipped on Friday and were on course to drop for the second week in three as investors braced for a hawkish statement from the central bank when it releases policy on Tuesday.
Financials led the decline with the market expecting the Reserve Bank of India (RBI) to raise key short-term rates by at least 25 basis points. It would be the ninth increase since mid-March last year to rein in high inflation.
HSBC said a worsening inflation outlook strengthens the case for continued monetary tightening by the central bank, and it may lift rates by 50 basis points on Tuesday.
"We are holding up our hopes that they will deliver a more decisive move to avoid falling too far behind the curve and help better anchor inflation expectations," HSBC economists Leif Lybecker Eskesen and Prithviraj Srinivas wrote in a note.
Analysts polled by Reuters this week showed they expect a total of 75 basis points increase in rates for the rest of 2011, up by 25 bps from a forecast in March.
Top lender State Bank of India and HDFC Bank were down 0.7 percent and 1.1 percent respectively.
ICICI Bank extended gains and rose 0.2 percent after it reported on Thursday its strongest quarterly profit growth in at least seven years and signalled further improvement in asset quality.
At 10:55 a.m. (0525 GMT), the 30-share BSE index was down 0.24 percent at 19,245.93 points with 12 components declining.
It is down 1.7 percent for the week and nearly 1 percent lower in April.
Data from the market regulator showed, foreign institutional investors (FIIs) were sellers for the first three trading sessions this week.
"FIIs are just booking profits. I don't see this as a withdrawal from Indian stocks," Deven Choksey, managing director and CEO of KR Choksey Shares. "People are also hesitant before the RBI policy next week."
Foreign funds, who had been net sellers in January and February, have bought a total of $3.2 billion over the past eight weeks.
The 50-share NSE index was down 0.2 percent at 5,773.90. Losers outpaced gainers in the ratio of 1.3 to 1in the broader market, with 244 million shares traded on the NSE.
Cigarettes-to-hotels group ITC was up 0.8 percent on demand optimism based on India's robust consumption story.
Steel Authority of India was down 1.3 percent ahead of its March quarter earnings.
The MSCI's measure of Asian markets other than Japan was down 0.8 percent, while Japanese markets were closed for a public holiday.
Crompton Greaves tumbled 11.6 percent to 248.15 rupees after the power equipment maker reported late on Thursday a 6 percent decline in March quarter profit.
Credit Suisse said in a note a sharp fall in margins was a concern.
Manappuram General Finance & Leasing was up 4.2 percent at 137.15 rupees after the non-banking lender said its fiscal year 2011 net profit more-than-doubled and the firm's board approved a one-for-one bonus issue of share.
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