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At 10:32am, the 30-share BSE Sensex was at 20799 levels down 126 points or 0.6% as compared to its previous close and the 50-share Nifty was at 6,193 down almost 44 points.
The rupee fell and bonds yields surged on Friday after retail inflation spiked, raising bets of a rate hike at the RBI's policy meeting next week.
The rupee fell to 62.18 against the greenback and was last trading at 62.18. It had last closed at 61.81/82.
Bond yields surged as traders factored in the prospect of the third rate hike by Reserve Bank of India governor Raghuram Rajan.
The 10-year bond yield was up 7 basis points at 8.92%.
Sharply higher food prices drove up retail inflation to 11.24% in November from 10.17% in October, data released Thursday showed.
Banks are among the top losers among BSE sectoral indices tracking industrial sectors followed by capital goods, power, oil & gas, Realty and metals while IT, TECk and Healhcare are the gaining marginally at at this hour.
ICICI Bank down 2.5%, HDFC down 1.8%, ITC down 0.8%, L&T and RIL down 0.7% are the top Sensex laggards at this hour.
In broader markets small-cap index of the BSE is up .1% while mic-caps index is down 0.2%.
(Update at 1030hrs)
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Markets opened on a weak note, after yesterday's over 1% downtick, on fears a rate (repo) hike by the Reserve Bank of India (RBI) after two sets of data released on Thursday showed a sharp spike in retail inflation and a worse-than-expected contraction in industrial production and retail inflation came in all-time high levels. As a result, market players expect the central bank to increase the repo rate by at least 25 basis points to eight per cent - exactly the level at the beginning of this year.
Market players expect the central bank to increase the repo rate by at least 25 basis points to eight per cent - exactly the level at the beginning of this year. Mainly driven by high vegetable prices (food prices soared by an annual 14.72 per cent), the retail inflation rate accelerated to an all-time high of 11.24 per cent in November (from 10.17 per cent the previous month), making the Reserve Bank of India's (RBI's) mission to cool prices without hobbling chances of a rebound more difficult.
Industrial output, on the other hand, punctured any hope of economic recovery in the second half of the financial year. The Index of Industrial Production (IIP) declined to a four-month low of 1.8 per cent in October, despite festival-related demand, compared with two per cent growth in September. Part of the decline could be attributed to a 15-month-high growth (8.4 per cent) seen in industrial output in the same month last year.
At 9:30am, the 30-share BSE Sensex was at 20867 levels down almost 129 points or 0.6% as compared to its previous close and the 50-share Nifty was at 6,200 down almost 37 points
The rupee weakened for a third day on Friday, weighed down by losses in the domestic share market and concerns about likely outflows in the event of a sooner-than-expected US Fed taper. At 9:45am, the rupee is trading at 62.14-a-dollar down 0.33p from its previous close.
Banks are among the top losers among BSE sectoral indices tracking industrial sectors followed by capital goods, power, oil & gas, Realty and metals while IT, TECk and Healhcare are the gaining marginally at at this hour.
Among heavyweights ICICI Bank down 2.8%, ITC down 0.87%, RIL down 0.97%, HDFC down 1.27% and Larsen & Toubro down 1.40% being the top Sensex laggards at this hour.
In broader markets small-cap index of the BSE is margninally up while mic-caps index is down 0.2%.
The global cues too are negative with Asian markets jittery on Friday as investors fret over the outlook for U.S. policy stimulus, though Japanese stocks drew some comfort from a reversal in the yen which slid to a seven-month trough on the dollar.
Any drop in the yen tends to be viewed as a positive for Japanese exports and corporate profits, and thus for the stock market. The Nikkei responded by edging up 0.3 percent, following three straight sessions of losses.
Other share markets in Asia took their lead from a soft finish on Wall Street. MSCI's broadest index of Asia-Pacific shares outside Japan was off 0.2 percent in early trade, while Korea's KOSPI dipped 0.5 percent.
Stocks fell on Thursday as retail sales rose solidly in November, adding to signs the economy is strong enough for the Federal Reserve to begin reducing the pace of monetary stimulus.
Profit-taking also played a part in the market's decline, with investors selling some stocks to lock in gains from this year's rally. The S&P 500 is set to close its strongest yearly performance in more than a decade.
The Dow Jones industrial average fell 0.66 percent, to end at 15,739.. The S&P 500 lost 0.38 percent, to finish at 1,775. The Nasdaq Composite dropped 0.14 percent, to close at 3,998.
