India’s industrial output grew just 1.8% in December, its slowest in two months, as sluggish global growth, tight monetary policy from the country’s central bank and government policy paralysis stifles economic growth.

Shares in carmakers, construction companies and banks all fell, as the less-than-forecast figure confirmed fears of slowing economic growth in the country.

Morgan Stanley will scale back its position in emerging and Asian stocks from the maximum “overweight,” the investment bank said in a report released on Friday. It was the bank’s first downgrade in stance on emerging markets since October, 2010.

“The output was worse than expected, and the market took a hit on Morgan Stanley’s cut in allocation for emerging markets, which will likely see foreign inflows fall,” said Hitash Dang, vice president at Jaypee Capital.

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“But the highlight of today was Tata Steel, even given their bad results, which shows the underlying positive appetite in the market.”

Foreign funds have invested more than $3.6 billion in local equities so far this year, data from the Securities and Exchange Board of India showed. In 2011, they were net sellers of about $500 million.

The main 30-share BSE index fell 82.06 points to end at 17,748.69, with 22 of its components losing value. The benchmark index was up 0.3% before the industrial output data was released.

Tata Steel, the world’s No. 7 producer of the alloy, was the benchmark index’s best performer on Friday, as investors reversed early falls on news that the company expected rising domestic sales in the coming fiscal year.

Shares in Tata Steel closed up 5.1% at Rs 475.05 ($9.60).

State-run Indian oil companies’ shares rose a day after news that the country’s finance ministry would reimburse the retailers with Rs 15,000 crore as a subsidy for below-market price sales in the quarter to December.

Hindustan Petroleum Corp Ltd shares closed up 2.2% at Rs 294, while shares in Indian Oil Corp ended up 1.5% at Rs 275.70. Shares in Bharat Petroleum Corp closed little changed at Rs 598.20, after rising as much as 4.9%.

Top automaker Maruti Suzuki lost 2.0% to close at Rs 1,244.60, and rival Mahindra & Mahindra shed 1.5% to close at Rs 691.55.

Shares in India’s biggest banks fell on news of slowing industrial output. The sector index closed down 0.7%.

Shares in the country’s top lender State Bank of India fell as much as 1.6%, before closing at Rs 2,171,90, a fall of 0.6%. Shares in ICICI Bank closed down 1.0% at Rs 930.45 after falling as much as 4.9%.

The 50-share NSE index ended 0.57% lower at 5,381.60 points. In the broader market, gainers led losers by a ratio of about 4:3 on a larger than average volume of almost 1 billion shares.

Global stocks fell on Friday as safe-haven government bonds rose, as the final approval of a long-awaited Greek debt deal remained elusive and kept alive the threat of a messy default.

In Asia, the MSCI’s broadest index of Asia Pacific shares outside Japan was down 1.6% at 15:30pm, while Japan’s Nikkei had closed down 0.6%.

STOCKS

Jindal Stainless shares closed down 4.5% after the steelmaker reported a December-quarter loss of Rs 110 crore.

Shares in Numeric Power Systems Ltd closed up 20%, their maximum daily increase, after the company agreed to sell its UPS business for Rs 837 crore.

Dion Global Solutions shares closed up 4.9% after Mahindra Satyam said it will buy a strategic stake in the company.