The Sensex dropped over 185 points and the NSE Nifty slipped below the 12,000-mark on Friday after Moody's Investors Service lowered India's credit rating outlook citing concerns over the country's economic growth.
The rupee also depreciated 30 paise against the US dollar to trade at 71.27 in early session.
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Investors reacted negatively to Moody's changing India's outlook to negative from stable. The agency, however, affirmed the Baa2 rating. Moody's decision reflects increasing risks that economic growth will remain lower than in the past.
At 10.38 AM, the Sensex was 185.35 points down or 0.46 percent lower at 40,468.39, while the Nifty was 48.75 down or 0.41 percent at 11,963.30. At 10 AM, the BSE S&P Sensex was down by 76 points at 40,577 while the Nifty 50 edged lower by 25 points to 11,988. Sectoral indices at the National Stock Exchange were mixed with Nifty pharma down by 0.7 percent and FMCG by 0.4 percent, reported ANI.
In earlier trade, the 30-share index was trading 102.30 points, or 0.25 percent, lower at 40,551.44. Similarly, the broader NSE Nifty slipped 28.25 points, or 0.24 percent, to 11,983.80. Top losers in the Sensex pack included Sun Pharma, HUL, Bharti Airtel, NTPC, PowerGrid and RIL, shedding up to 1.69 percent.
On the other hand, Yes Bank, ICICI Bank, IndusInd Bank, HCL Tech, M&M, Tata Motors and ONGC rose up to 2.26 percent, PTI said.
In the previous session, the 30-share Sensex ended 183.96 points, or 0.45 percent up at its new all-time high of 40,653.74. Similarly, the Nifty ended with a gain of 46 points, or 0.38 per cent, at 12,012.05.
"Market reaction will depend on institutional view on the development, will FIIs cut India exposure remains to be seen," said Deepak Jasani, head of retail research at HDFC Securities to Reuters.
"If they agree with Moody's assessment and don't have an alternative, there may not be a rush to exit."
The Nifty PSU Bank index which tracks state-run lenders, was the top loser among NSE sectoral indexes, slipping nearly 1 percent.
Foreign institutional investors purchased shares worth Rs 926.60 crore in the capital market on Thursday, while domestic institutional investors sold equities worth Rs 635.59 crore, data available with stock exchange showed.
Despite positive cues from global markets and sustained foreign fund inflow, domestic equities turned negative after Moody's Investors Service lowered the outlook on India's credit ratings, traders said. The agency has changed the outlook on India's ratings to 'negative' from 'stable', saying there was increasing risks that economic growth will remain materially lower than the past.
While the government's recent measures to support the economy should help to reduce the depth and duration of India's growth slowdown, prolonged financial stress among rural households, weak job creation, and, more recently, a credit crunch among non-bank financial institutions (NBFIs), have increased the probability of a more entrenched slowdown, it said.
Automakers Ashok Leyland and Mahindra and Mahindra Ltd fell as much as 1.24 percent and 0.55 percent, respectively, ahead of their quarterly results later in the day. This pushed the NSE auto index lower by more than 0.5 percent.
GlaxoSmithKline Consumer Healthcare rose as much as 1.16 percent after the drugmaker reported a strong set of quarterly numbers.
Rupee falls 30 paise
The rupee opened on a cautious note and fell 30 paise to 71.27 against the US dollar in early trade on Friday after Moody's changed its India rating outlook to negative citing lower economic growth.
Weak opening in domestic equities also weighed on the domestic currency, however, sustained foreign fund inflows and easing crude oil prices capped the losses, forex traders said. At the interbank foreign exchange, the rupee opened at 71.26 then fell to 71.27 against the US dollar, showing a decline of 30 paise over its previous closing.
The Indian rupee on Thursday had closed at 70.97 against the US dollar.
Asian shares retreat from 6-month highs
Globally, bourses in Shanghai, Hong Kong, Tokyo and Seoul started on a positive note after China hinted at removal of tariffs in the long-running trade war with the US.
Shares on Wall Street too ended on a positive note on Thursday, according to a Reuters report.
Asian stocks retreated from six-month highs on Friday on uncertainty over whether and when the United States and China will seal a deal marking a truce in their trade war that has slowed economic growth and roiled markets.
Global markets rallied overnight on news the two countries have agreed to roll back tariffs on each others' goods as part of the first phase of a trade deal.
But markets ran into profit-taking during Asian hours on worries the pact could still fall apart as an outside adviser to Trump said there was no specific agreement for a phased rollback of the tariffs.
Multiple sources familiar with the talks said the plan faced fierce internal opposition at the White House and from outside advisers.
MSCI's gauge of Asia-Pacific shares outside Japan was off 0.2% at 536.43 after rising to 538.77, a level not seen since early May. For the week, it is so far up more than 2%.
Tokyo's Nikkei, which earlier in the day climbed to a 13-month high, gave up some of the gains to be last up 0.05%. Chinese shares were firm with the blue-chip index up 0.4%.
"The noise coming from Washington DC was not quite so upbeat, with reports of conflicts amongst White House advisors on the merits of the plan," said Jeffery Halley, senior market analyst at OANDA.
"That said, despite the lack of detail and a concrete timeline for even signing an interim trade deal, progress does at least appear to be being made. As ever, the caveat here is the unpredictable nature of the White House."
E-mini futures for the S&P 500 were down 0.2 percent while Dow minis ticked 0.1 percent lower.
Overnight on Thursday, U.S. stocks pared gains on the report of the opposition to the deal in Washington but the Dow and S&P 500 did end at all-time closing highs. The Nasdaq missed a record close by less than two-tenths of a point.
As investors wound back their buying in safe assets, the 10-year U.S. Treasuries yields jumped to 1.9730% on Thursday to a three-month peak, and last stood at 1.9138%.
International currencies lose edge
In the currency market, safe-haven currencies lost some of their edge, though moves were small.
The dollar climbed to 109.22 yen, reaching a five-month high of 109.49 the previous day.
The offshore yuan traded at 6.9768 yuan per dollar, not far from a three-month high of 6.9530 per dollar in US trade on Thursday. The euro was steady at $1.1051, having marked a low of $1.10355 in U.S. trade, its weakest since 16 October.
Brent futures, the global oil benchmark, slipped 0.16 percent to $62.19 per barrel.
--With inputs from agencies