Sensex falls; banks hit by provisioning worries

An investor watches the share index at a local share and stock market in Chandigarh June 18, 2012.

MUMBAI (Reuters) - The BSE Sensex fell on Friday, ending the week with mild losses, led by lenders such as ICICI after a Reserve Bank of India panel recommended tightening regulations on loan restructuring, including setting aside higher provisions.

Power equipment makers such as Bharat Heavy Electricals (BHEL.NS) were hit by profit-taking, despite the government's proposal to impose duties on some imports as the action was widely expected.

Stock investors are gearing up for a busy next week, as a slew of companies, including cigarette maker ITC (ITC.NS) report April-June earnings. Thursday also marks the monthly expiry of derivatives.

Perhaps more importantly, investors are hoping the government will start to announce long-stalled policy reforms, including allowing foreign investment into the retail or aviation sectors, after presidential elections results are announced on Sunday.

The progress of rainfalls during the monsoon season will also be critical, with a continued shortfall likely to raise worries about rural consumption and higher food prices that could spur inflation.

"The government has no choice now: it has to initiate reforms mainly because of the recent rating downgrades, a falling rupee, stagnating manufacturing sector and a weak monsoon," said G. Chokkalingam, Executive Director & Chief Investment Officer at Centrum Wealth Management.

"If the government fails to deliver this time, it will be a disaster. So the markets are very optimistic about government actions," he added.

The Sensex fell 0.7 percent to 17,158.44 points. The index lost 0.3 percent for the week.

The Nifty declined 0.72 percent to end at 5,205.10 points, posting a 0.4 percent loss for the week.

Shares have fallen this month, with the Nifty down 1.4 percent versus a 1.3 percent gain in the MSCI Asia-Pacific index excluding Japan, as investors await policy measures from the government

Banking shares led decliners on Friday after a panel appointed by the Reserve Bank of India recommended higher loan-loss provisions by banks and greater "sacrifice" by founders of controlling shareholders of troubled companies.

ICICI Bank (ICBK.NS) fell 1.7 percent, while HDFC Bank (HDBK.NS) fell 1.2 percent.

Bharat Heavy Electricals (BHEL.NS) fell 3 percent, as shares had already risen 10.7 percent since the end of May, in part on expectations the government would impose duties on imports of power equipment for large electricity generation.

Companies in the sector had long complained about cheaper imports, especially from China. Larsen & Toubro (LART.NS) fell 1.2 percent.

However, among gainers, Maruti Suzuki India (MRTI.NS) rose 2.7 percent, recovering from its 8.9 percent drop on Thursday as some investors saw the stock as oversold.

Shares in India's biggest auto maker had posted their biggest daily fall since July 2010 after shutting production at the factory in Manesar, Haryana, following a deadly riot.

Bajaj Auto rose for a third consecutive day, gaining 2.9 percent to its highest close since May 16 on a slew of upgrades by brokerage houses, which cited attractive valuations and a turnaround in earnings.

Shares in Tata Communications (TATA.NS) gained 5.9 percent after the cabinet on Thursday paved the way for the mobile carrier to sell surplus land.

(Additional reporting by Madhura Karnik)