Shares closed lower on Friday to log their first weekly drop in five weeks amid fears that the U.S. Federal Reserve will continue its policy of aggressive rate hikes.
The benchmark S&P BSE Sensex .BSESN ended down 0.14% to 61,663.48 and NSE Nifty 50 index .NSEI dropped 0.2% to 18,307.65. They fell about 0.2% for the week.
Both indexes had gained more than 2% in the wake of relatively soft U.S. inflation data last week, which had rekindled bets for smaller rate hikes.
But they have dropped about 0.75% in the past two sessions as an increasing number of Fed officials fired warning shots on interest rates. World stocks were heading for a 1% loss on the week on Friday.
"Indian markets are in the overbought zone. Geopolitical tensions and the Fed again being on the hawkish mode are keeping Asian markets under pressure and Indian markets under profit-taking zone," said Prashanth Tapse, vice president of research at Mehta Equities.
With corporate earnings mostly done, the markets will be trading sideways until the next Fed rate decision in early December, Tapse said.
St. Louis Fed President James Bullard and Minneapolis Fed Bank President Neel Kashkari batted for more rate hikes late on Thursday to tackle inflation.
The recent strength in Indian stocks is also down to foreign investors' participation.
They have purchased a net $3.52 billion worth of equities so far this month, compared with marginal withdrawals worth $0.52 million in October, Refinitiv data showed.
Among stocks, Bajaj Healthcare BAJH.NS surged as much as 7.5% after it completed the U.S. health regulator's pre-approval inspection of its facility in Gujarat, while Honda India Power HOND.NS hit a record high in a post-results rally.
The public sector bank index .NIFTYPSU rose 1.5%, while the auto index .NIFTYAUTO was a top drag, falling 1.2%.