Indian stocks fell for a third straight session on Friday, dragged by shares of energy companies such as Reliance Industries Ltd and oil marketers, a day after the government announced a cut in fuel prices.
The Reserve Bank of India's (RBI) policy decision due later in the day also added to the cautious undertone, with the market expecting an interest rate hike to prop up the rupee, which has weakened 15.2 percent against the dollar this year and is trading near an all-time low of 73.82 touched on Thursday.
Over two-thirds of 61 economists said in a Reuters poll the RBI would lift the repo rate at least once by the end of 2018, with over half stating that there would be a 25 basis points rise in October.
"In general, what's driving emerging market weakness is a stronger U.S. economy ... there is a lack of clarity on the effectiveness of rate hikes as a currency defence," said Sunil Sharma, chief investment officer with Sanctum Wealth Management.
Shares in state-owned oil marketing companies slumped more than 20 percent to multi-year lows on Friday, after the government on Thursday announced a 2.50 rupees-per-litre cut in gasoline and diesel prices to reduce the burden on the Indian masses from all-time high prices at fuel pumps.
The price cut sparked fears of the country going back toward the regulated regime where the prices of diesel and petrol were controlled by the government. Petrol prices were regulated until 2012, while diesel prices remained so until 2014.
Shares of Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd extended losses and were down as much as 24.38 percent to 27.96 percent.
Reliance Industries Ltd, down 3.35 percent, contributed to almost a third of the broader NSE index's losses. Oil and Natural Gas Corp Ltd was down 10.6 percent.
The broader NSE Nifty was down 1.38 percent at 10,452.9 as of 0616 GMT, while the benchmark BSE Sensex was 1.03 percent lower at 34,807.77.
Other index heavyweights such as ITC Ltd and Hindustan Unilever Ltd were also trading lower, down 1.8 percent and 2.4 percent, respectively.
However, IT stocks recovered after the sectoral index closed nearly 3 percent lower on Thursday. HCL Technologies Ltd and Infosys Ltd were up 0.9 percent and 0.7 percent, respectively.