MUMBAI The BSE Sensex fell on Friday as caution ahead of a key inflation report next week that will help determine the outlook for interest rates hit lenders such as State Bank of India and spurred profit-taking in recent outperformers such as ONGC.
However, Infosys, India's second-biggest software exporter, surged 16.8 percent, its biggest ever daily percentage gain on the more actively traded National Stock Exchange, after reporting stronger-than-expected earnings and raising its annual revenue forecast.
Although comforted by Infosys' outlook, investors are focused on the wholesale price inflation data due on Monday, which will help set expectations ahead of the critical central bank policy review on January 29.
Investors are pricing in at least a 25 basis point rate cut this month, with industrial output data for November showing an unexpected contraction, supporting that case.
"Inflation is the most important data point for equities in the near term. Until you have control on inflation, monetary policy may not be as supportive," Phani Sekhar, fund manager, Angel Broking.
The BSE Sensex rose 0.09 percent to end at 19,663.64. It ended down 0.6 percent for the week, its first fall in three weeks.
The broader Nifty ended down 0.29 percent, or 17.35 points, lower at 5,951.30. It ended down 1.1 percent for the week.
Banking shares fell ahead of the December inflation data. Wholesale prices are expected to have risen 7.40 percent from a year ago, a Reuters poll showed.
ICICI Bank fell 1.4 percent, while SBI ended 1.9 percent lower.
Defensive sectors, including consumer goods, fell on profit-taking as traders shifted towards riskier, high-growth sectors including software services exporters.
Hindustan Unilever Ltd fell 3.58 percent, while ITC Ltd (ITC.NS) lost 2.7 percent.
Energy companies also fell on profit-taking after recently surging on expectations the government will soon raise fuel prices. The oil ministry has moved a proposal to the cabinet to raise diesel prices, official sources told Reuters this week.
ONGC shares ended down 3.3 percent. They have added 16.7 percent since December 28 and Oil India fell 2.48 percent. Its shares have added 7.9 percent since December 28.
Cement makers extended recent falls on near-term profit on concerns over short-term growth and that they would be hit by higher input costs should that impact third-quarter earnings.
Ambuja Cements fell 2.8 percent. It has dropped 4.6 percent so far this year as on Thursday's close. Ultratech ended 0.8 percent lower. They have fallen 4.5 percent so far this year.
However, Infosys surged as its earnings spurred optimism about the growth prospects for Indian technology companies, a sector that was the worst performer in 2012.
Infosys added over $4 billion to its market value on Friday alone, or the equivalent of Fiji's GDP, according to World Bank data.
Tata Consultancy Services Ltd (TCS.NS) shares gained 3.81 percent ahead of its earnings on Monday, while Wipro Ltd (WIPR.NS), which reports on Friday, gained 6.16 percent.
Shares in Sterlite Industries (India) Ltd STRL.NS rose 1.13 percent after Morgan Stanley upgraded the stock to "overweight" from "neutral", citing a planned group restructuring, improving sentiment in power and aluminium, and an improving economic outlook for China.
(Additional reporting by Abhishek Vishnoi; Editing by Prateek Chatterjee)