Indian equities on Friday erased gains made earlier in the day and were marginally lower, led by a fall in shares of banks and non-banking finance companies. Investors turned wary on reports of another lender missing interest payment.

At 10 am, the Sensex was down 0.04% or 10.30 points at 37093.98, while the Nifty 50 eased 0.03% to 10982.95 points.

Altico Capital India Ltd, a lender to real estate companies, said it has defaulted on interest payments worth 19.9 crore due to Mashreq Bank of Dubai, underscoring the rising stress in India’s cash-starved property market.

Among PSU banks, Union Bank of India fell 4%, Canara Bank was down 3%, Bank of Baroda fell 3%, Oriental Bank of Commerce declined 2%, Syndicate Bank 1.7%, Punjab National Bank 1.7%, and State Bank of India was down 1.4%.

Among non-banking finance companies (NBFCs), L&T Finance Holding declined 4%, Edelweiss Financial Services 3.2%, Dewan Housing Finance 3.6%, Aditya Birla Money 2.6%, Indiabulls Housing Finance 2.3%, and LIC Housing Finance 2.2%.

Domestic markets had opened nearly 0.4% higher, led by gains in auto stocks and tracking global peers. Sentiment was positive after data released on Thursday showed consumer-price inflation in August stayed within the central bank’s medium-term target, boosting expectation of another rate cut at the Reserve Bank of India’s policy meeting next month.

Consumer prices rose 3.21% year-on-year in August compared with a 3.1% growth in July. Also, core inflation dipped to 4.2%, reversing July’s rise to 4.5%. CPI was lower than the 3.32% median estimate of a Bloomberg survey of 41 economists.

Industrial production (IIP) growth rose a stellar 4.3% year-on-year in July compared with a downward revised 1.2% growth in June, and also above expectation.

"We believe the positive surprise on IIP growth is a sign of possible bottoming of the industrial growth cycle. While high frequency data (auto sales) have continued to disappoint, we believe Q2 (Apr-Jun) marked the trough in the growth rate cycle and GDP growth will gradually recover, benefitting from the lagged effects of lower cost of borrowing, improved liquidity conditions, front-loaded government spending and base effects", said Nomura Research in a report to its investors.

"We expect GDP growth to pick-up from 5% y-o-y in Q2 to 5.6% in Q3, 6.3% in Q4 and 6.9% by Q1 2020. However, we believe the RBI’s FY20 GDP growth projection is too optimistic and will likely be downgraded at the 4 October policy meeting. Given that inflation is within the 4% target and a larger-than-expected negative output gap, we expect the RBI to deliver a cumulative 40bp rate cut in Q4, most of which will likely be reflected in the October meeting", Nomura added.

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