MUMBAI (Reuters) - The BSE Sensex fell on Thursday, led by ICICI Bank which was hit by profit-taking after beating earnings forecasts, while the expiry of January derivatives kept trading volatile towards the end of the session.
The BSE index added 2.4 percent in January to post its third-straight monthly gain and its longest winning streak since gaining for four consecutive months from June to September in 2010.
The gains were sparked by strong continued foreign net inflows, which reached 208.1 billion rupees as of January 30.
Analysts attribute January's gains to the government's efforts at additional fiscal reforms, but shares have fallen 1.04 percent since the central bank disappointed on Tuesday with a cautious stance on interest rates despite cutting them for the first time in nine months.
The outlook for stocks largely depends upon how the government handles its current account deficit and how the budget pans out.
"Next month will be critical from the Indian budget point of view, so that will occupy most of the mind space of traders and investors," said Jagannadham Thunuguntla, head of research, SMC Investments and Advisors Ltd.
"RBI will watch the budget data carefully and the impact it will have on inflation and rupee movement and take further decisions depending on that."
The benchmark BSE Sensex fell 0.55 percent, or 110.02 points, to end at 19,894.98, a shade below the psychologically important 20,000 mark.
The broader Nifty fell 0.35 percent, or 21 points, to end at 6034.75 on the last day of derivatives expiry.
January derivatives expired on Thursday. The last day of these contracts can typically lead to volatility in cash markets, especially towards the end of the session.
Dealers are now watching for earnings of companies like Bharti Airtel (BRTI.NS), BHEL and auto sales numbers for sectoral cues.
Bharti Airtel shares ended 1.45 percent lower ahead of December quarter earnings.
ICICI Bank Ltd (ICBK.NS) shares ended 1.8 percent lower, after earlier hitting their highest since November 16, 2010, on profit-taking after India's No. 2 lender beat forecasts with a 30.2 percent rise in net profit for the third quarter.
Its shares have risen 6.5 percent this month as of Wednesday's close on hopes of rate cuts and better earnings.
Colgate Palmolive India Ltd (COLG.NS) shares fell 2.52 percent after reporting lower-than-expected volume growth at 8 percent, the lowest in the past 15 quarters.
Among banks, the state-owned ones, which have cheaper valuations than private sector peers, rallied after reporting improved asset quality in the October-December quarter.
Punjab National Bank (PNBK.NS) rose 9.41 percent, its biggest gain since May 18, 2009, while Union Bank of India (UNBK.NS) shares ended 5.9 percent higher.
Lupin Ltd (LUPN.BO) shares ended 0.83 percent higher after the Mumbai-based drugmaker's net profit and margins beat expectations in the quarter ended in December.
Jet Airways (JET.NS) shares gained 4.46 percent on news a stake sale deal with Abu Dhabi's Etihad Airways will be finalised in a week or so, an executive at the airline, who declined to be named, said on Thursday.
(Reporting by Manoj Dharra; Editing by Prateek Chatterjee)