Markets snapped four day winning streak dragged by rate sensitive shares after expectations of a rate cut were dashed with the Reserve Bank of India maintaining a status quo on key policy rates.
The Sensex was up 4.5 per cent and Nifty was up 4.7 per cent in past 4 days.
The BSE benchmark index slumped 143 points to finally end at 17,676. Nifty slipped 83 points at 5,380.
The government pegged inflation to be at 6.5-7 per cent by Match 2012 in the economic survey conducted on Thursday.
FY12 industrial growth has been pegged at 4-5 per cent while the same for 2013 is at 7.6 per cent.
Asian shares eased on Thursday on renewed concerns about Chinese growth, but a brighter global economic outlook underpinned the dollar and kept investor risk appetite intact. Japan's Nikkei added 0.7 per cent to 10,123.
However, Shanghai Composite slipped 0.7 per cent to 2,374.
The rate sensitive sectors such as real estate and banking slipped 2.6 per cent each after the Reserve Bank of India kept key policy rates unchanged in its mid-quarter policy review on Thursday.
The cash reserve ratio of scheduled banks were kept unchanged at 4.75 per cent of their net demand and time liabilities while the policy repo rate under the liquidity adjustment facility is at unchanged at 8.5 per cent.
RBI further said that risks to inflation have increased due to higher crude prices, the large fiscal deficit and a weakening local currency.
"The RBI is awaiting measures on fiscal consolidation, not just the headline numbers but the manner in which the Government will put forth the expenditure management as well as the revenue generating measures.
"We believe there are few options but to embark on meaningful fiscal consolidation through credible measures," said Shubhada Rao, Executive Vice President &
Markets would now be looking at Friday's Annual Budget and the advance tax numbers by companies for direction.
Market heavyweight, Reliance, dipped into red and was one of the biggest draggers among Sensex stocks. Shares of RIL traded down 2 per cent at Rs 798.
Banking names such as ICICI Bank and HDFC Bank declined 3 per cent each.
BHEL, ONGC and Larsen & Toubro declined 2-3 per cent each. Coal India declined 2.2 per cent on turning ex-dividend.
Meanwhile, Hindustan Unilever, from the FMCG pack held on to gains and advanced 1.8 per cent to Rs 388. Tata Motors, GAIL, NTPC and TCS added around 1 per cent each.
Japan's Kobe Steel is planning to buy a small stake in steel pipemaker Man Industries.
The stock erased gains and ended down 1.4 per cent.
Punj Lloyd has bagged a contract for mechanical works worth about RS 153 crore from Singapore's SK Engineering and Construction Co.
The stock, however, dipped 5 per cent to Rs 56.
Reliance Communications and Reliance Power will move out of the National Stock Exchange's 50share Nifty index with effect from April 27, and would be replaced by Asian Paints and Bank of Baroda.
Reliance Communications shed 4.7 per cent while Reliance Power dropped 2.3 per cent.
BSE market breadth was fairly negative.
Out of 2,983 stocks traded, 1,844 shares declined while 1,010 shares advanced in trades.
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