The wholesale price index in March rose a much faster-than-expected 5.70 per cent from a year earlier, marking a three-month high and coming well above the 5.30 per cent increase forecast by economists.
Concerns that a rally that sent indexes to record highs last week may have been overdone also weighed, especially as Asian shares were hit by data showing China's money supply growing at the weakest pace in more than a decade. Foreign institutional investors, who have pumped in $4.8 billion so far in 2014, became net sellers worth Rs. 363 crore ($60.3 million) on Friday for the first time since March 10.
With the Nifty seeing a one-sided rally for the last several weeks, investors may continue to book partial profits too. In the coming sessions, fourth quarter results, election outcome and global cues will have a major impact on the market trend.
However, despite selling pressure, Nifty is seen holding above the 6700 level well, which shows optimism in the near term. The index can be seen trading in a compact range of 6650-6820 for the last few trading sessions.
The Sensex closed 0.64 per cent lower at 22,484.93, while Nifty also ended down 0.64 per cent at 6,733.10.Shares such as those of banks and real estate companies fell after the surprisingly strong wholesale price inflation.These sectors had surged on anticipation the Reserve Bank of India would hold off on further interest rate hikes after tightening monetary policy by 75 basis points since September.Housing Development Finance Corp fell 3.39 per cent, while DLF Ltd lost 5.8 per cent and Unitech closed 2.1 per cent lower.Among banks, State Bank of India ended down 1.5 per cent.
Investors took profit across a range of companies, Hindalco Industries fell 4.73 per cent, while Tata Motors, which had gained 6.3 percent so far this month, was down 2.4 per cent.
Infosys Ltd rose 0.76 per cent after posting a stronger-than-expected 25 per cent increase in net profit.Other IT companies also rose, with Tata Consultancy Services gaining 4.1 per cent and Wipro closing 3.6 per cent higher.
Shares in United Spirits Ltd rose as much as 15 percent to a record high of Rs. 2,940.80 after Diageo Plc announced a tender offer to acquire up to an additional 26 per cent stake in the Indian firm at Rs.3,030 a share. The offer will be launched in June.Shares ended up 11.6 per cent.