Indian shares declined on Friday and erased weekly gains amid weakness in financials stocks due to declines in Housing Development Finance Corp and HDFC Bank, and persistent fears over the U.S. banking sector.
Financials stocks led the slide in the Nifty, falling 2.34% in the worst single-day drop in over three months.
Housing Development Finance Corp Ltd and HDFC Bank Ltd declined over 5.5% each after MSCI said it included the merged entity of the two companies in its large-cap index, but with an adjustment factor of 0.5.
Nuvama Research estimated this would lead to an outflow of $150 million to $200 million from the entity.
"The event is one-time, but the businesses of HDFC and HDFC Bank are perpetual," said Avinash Gorakshakar, head of research at Profitmart Securities, adding that the fall in the shares is temporary.
Analysts expected Nifty 50 to consolidate after the recent rise on strong March-quarter earnings, but added that monsoons would be a key monitorable in the near term.
"If monsoons are poor, it will spark a slide in markets due to adverse impact on the country's predominantly agri-linked economy and consumption," Gorakshakar added.
European Central Bank's rate hike and concerns in the U.S. banking sector due to the collapse of PacWest Bancorp also dragged investor sentiment.
Among individual stocks, TVS Motor Company Ltd jumped nearly 4% to a record high after reporting an uptick in March-quarter profit.
The auto index rose 0.40% and was among the top sectoral gainers in a weak market.
Shares of shadow lender Manappuram Finance Ltd fell over 11% after India's financial crime agency, Enforcement Directorate said it froze assets of the company worth 1.43 bln rupees.