MUMBAI (NewsRise) -- Indian shares suffered their biggest weekly decline in more than two months amid political wrangling in Karnataka and increased odds of an imminent interest rate hike.
The BSE Sensex and the Nifty 50 Index dropped 1.9% each. Financials were the biggest contributors to the weekly losses after India's April retail inflation accelerated more-than-expected, raising concerns that the Reserve Bank of India may increase interest rates sooner than projected. ICICI Bank has lost 8% since last Friday, while State Bank of India declined 4.7%. Axis Bank and Housing Development Finance Corp. fell by 3.3% or more.
"The RBI will likely keep rates unchanged in the upcoming June policy meeting as it assesses the durable risks to inflation," Macquarie said in a note. "However, we now expect the RBI to embark on an earlier-than-expected rate hike cycle and expect the first hike in August (of 25 basis points) vs. our earlier expectation of hikes to come in first quarter of 2019."
Bharti Airtel has fallen 6.2% since last Friday, carrying over its weakness from last week amid introduction of a new tariff plan by Reliance Jio Infocomm. CLSA said in a note that it is cutting Airtel's mobile revenue estimates through financial year 2021 to factor in the risk posed by Jio. Shares of Reliance Industries, parent of Jio, dropped 5.6% during the week.
Indian Oil led fuel retailers lower this week, down 3.3% since last Friday, as Brent crude crossed the $80 a barrel mark on Thursday, its highest level since 2014.
Among winners this week, consumer good company Hindustan Unilever rallied 6.5% and Bajaj Finance jumped 15.3% after their March quarter earnings beat expectations.
On Friday, ICICI declined 3.2%, SBI dropped 1.7%, HDFC shed 1%, and Axis Bank lost 1.3%. Bharti Airtel closed 1.3% lower and Indian Oil fell 0.6%. Bajaj Finance added 3.7% and Unilever rose 2.2%.
It was a difficult week for regional markets as a near 15-basis point rise in 10-year Treasury yields damped demand for risk assets. The Nikkei Asia300 Index of companies outside Japan posted a weekly decline of 1.3%.
Sensex closed 0.9% lower at 34,848.30 on Friday and the Nifty 50 index dropped 0.8% to 10,596.40, weighed by political uncertainty in the southern state of Karnataka.
The country's top court on Friday directed Prime Minister Narendra Modi's Bharatiya Janata Party to prove its majority in the Karnataka assembly at a vote scheduled to take place on Saturday. The court verdict follows the move by Indian National Congress to challenge the Karnataka governor's invitation to the BJP for forming a government after Tuesday's election results did not throw up a clear winner.
Anand James, chief market strategist at Geojit Financial Services said that "lack of clarity on government formation in Karnataka" is contributing to the volatility on Indian markets.
Among major movers on Friday, Bajaj Auto declined 1.5% after a choppy session. The two-wheeler manufacturer reported an almost 36% rise in consolidated net profit for the March quarter, in-line with analyst estimates.
Ashok Leyland dropped 3.9%. The commercial vehicle maker reported a 40% increase in net profit for the January-March quarter.
JK Tyre jumped 2.6% after its March quarter net profit beat estimates. Strides Shasun tumbled 23% after it reported a loss from continuing operations for the same period.
-- Nimesh Vora