By Abhishek Vishnoi
MUMBAI (Reuters) - The BSE Sensex and the Nifty fell for a second day in a volatile session on Friday as blue chips including ITC declined after the prime minister's economic panel said it would be a challenge for the government to meet its fiscal deficit target in the current year.
Also, traders lightened positions ahead of the U.S. Federal Reserve's decision on stimulus tapering and the RBI policy review next week, even as foreign investors continue to pour money in Indian shares.
Foreign institutional investors provisionally bought 9.30 billion rupees worth of shares on Thursday, bringing their total to nearly 66.7 billion rupees over the previous six sessions, exchange data showed.
The new RBI chief Raghuram Rajan will detail his first monetary policy review on September 20 with focus squarely on whether the central bank will partly or wholly reverse its cash tightening steps or give an indication on when they might be rolled back.
Prior to that, the U.S. Federal Reserve meets on September 17-18 and is expected to trim its bond buying programme. Any delay in the withdrawal of monetary stimulus will give a boost to risk assets.
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"We believe that some tapering off is already priced in and to that extent, if the actual amount of tapering matches expectation, it may not be taken negatively by the markets," said Dipen Shah, head of private client group research at Kotak Securities.
The first meeting of the RBI under the new governor will also be an important trigger for the market, especially the decision on interest rates, Shah added.
The benchmark Sensex fell 0.25 percent, or 49.12 points, to end at 19,732.76, after gaining as much as 0.6 percent earlier in the day. The index ended 2.4 percent higher for the week.
The Nifty fell 0.10 point to end flat at 5,850.60. It made a 3 percent gain for the week, marking its third consecutive weekly gain.
As traders lightened positions ahead of macro events later next week, ITC fell 1.5 percent.
IT shares fell on continued profit-taking after recent outperformance and as rupee strengthened from the record low of 68.85 to the dollar hit on August 28.
The BSE IT index fell 1.43 percent, marking its third consecutive day of declines.
Infosys lost 1.2 percent, while Wipro slumped 3.5 percent.
Among private sector banks, ICICI Bank fell 1 percent, while HDFC Bank ended 0.8 percent lower.
However, state-owned banks rose on attractive valuations compared to their private sector peers, dealers said.
State Bank of India gained 0.2 percent and Bank of Baroda Ltd rose 1.9 percent.
Among midcap state-owned banks, Union Bank of India gained 4.3 percent, while Oriental Bank of Commerce ended 6 percent higher.
(Editing by Jijo Jacob)