Indian shares fell 2.2 percent to their lowest close in more than two years on Friday, underlining investor gloom about the economic outlook even after the central bank said it would likely start easing monetary policy. The benchmark 30-share BSE index fell 2.2 percent to 15,491.35 points, its lowest close since November 3, 2009. It had risen as much as 1.5 percent in early trade. Twenty-eight of its components ended lower.
The main stock index, ended down 4.5 percent for the week, its second straight weekly loss, and its worst loss in four weeks. "It shows the lack of confidence on part of market participants," said K. K. Mital, chief executive for portfolio management services at Globe Capital Market.
Earlier on Friday, India's central bank left its policy rate on hold at a three-year high and said its next move is likely to be an easing of monetary policy as risks to economic growth increase. However, most economists in a Reuters poll, taken before Friday's review, did not forecast an interest rate cut until the second calendar quarter of 2012.
Financial stocks surrendered early gains over worries of rising bad debts. Largest lender State Bank of India fell 3.3 percent, while privately owned ICICI Bank and HDFC Bank ended down 3.2 percent and 3.7 percent, respectively. The sector index lost 3.2 percent.
"There was no follow up buying and the rupee has also given up part of its gains. The foreign institutions are not taking positions ahead of the year-end holidays, "said Deepak Jasani, head of retail research at HDFC Securities. Energy major Reliance Industries fell 3.8 percent to 721.85 rupees after heavy selling by foreign funds. The stock, a favourite with foreign investors, has been under pressure on concerns about slowing gas output and growth outlook.
Shares in software exporters, which get a large part of their revenue from the United States and Europe, fell after the rupee bounce. Tata Consultancy Services fell 3.3 percent, while Wipro lost 0.6 percent. The sector index fell 0.8 percent. Shares in capital goods companies also fell sharply in late trade. Top engineering and construction major Larsen & Toubro, which recently slashed its growth outlook due to the slowing economy and high rates, fell 5.3 percent to its lowest level in two-and-half years. Bharat Heavy Electricals fell 3.4 percent.