MUMBAI (Reuters) - The BSE Sensex and Nifty fell on Wednesday as a global flare-up of risk aversion hit blue chips such as Reliance Industries, though broader losses were cut as lenders gained on speculation the central bank could cut the cash reserve ratio.
Fears about the potential impact in southern India from a powerful 8.6 magnitude earthquake off Indonesia also kept investors on edge, exacerbating falls in Reliance and hitting others such as Tata Power that could have been the most impacted.
Markets are facing a series of important tests in the days ahead, with industrial output on Thursday, inflation on Monday and the Reserve Bank of India's policy meeting on April 17.
Though most analysts polled by Reuters still expect the RBI to announce a cut in the repo rate on April 17, they are paring back expectations for rate cuts through the new fiscal year started in April.
Some analysts also do not discount a cut in the cash reserve ratio, or the amount of funds banks must keep at the central bank, since such a move would most directly help ease the tight cash crunch facing lenders.
"We now expect rate cuts of 75 basis points in 2012 versus 125 basis points earlier, due to high crude oil prices and currency depreciation," said Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance, who oversees 12.5 billion rupees in Indian equities.
The Sensex fell 0.26 percent at 17,199.40 points and the Nifty fell 0.32 percent at 5,226.85.
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