Sensex flat SBI, Tata Motors reel after earnings

The BSE Sensex ended flat on Friday as gains in software service exporters such as Infosys on hopes for a revival in demand were offset by declines in State Bank of India and Tata Motors after both disappointed with their quarterly earnings.

Sentiment also weakened as Asian shares snapped a four-day rally on Friday after China's July trade data fell far short of expectations, casting doubts on whether the sputtering global economy will regain traction any time soon.

Despite the improvement in demand for risk assets evidenced this week, developments in the euro zone as well as economic indicators from major global economies will remain near-term drivers for Indian stocks.

Investors also continue to wait for the government to announce policy reforms after newly-appointed Finance Minister P. Chidambaram on Monday promised fiscal consolidation steps and a review of tax regulations that have proved unpopular with foreign investors.

The combined impact of an improving global risk environment and the hopes for fiscal reform measures led both the NSE and BSE indexes to gain around 2 percent each this week, marking their second consecutive weekly gain.

"Markets should continue to do well as risk-on trade still has more legs globally, and we are very much part of that," said Sandip Sabharwal, CEO of portfolio management services at Prabhudas Lilladher.

"Q1 results have been decent as the expectations were very low, except PSU banks due to higher NPAs and telecoms on greater pressure on profitability," he added.

The BSE Sensex ended down 0.02 percent at 17,557.74 points, adding 2.1 percent for the week.

The 50-share Nifty fell 0.05 percent to 5,320.40 points.

State Bank of India shares dropped 4.1 percent, despite a second-straight surge in quarterly net profit, after a bigger-than-expected rise in bad loans raised fears about its non-performing assets.

(Read story: SBI results, click http://in.reuters.com/article/2012/08/10/sbi-results-state-bank-shares-idINDEE87905R20120810)

Even before the results were out, UBS downgraded SBI to "sell" from "buy", saying a weak monsoon would add to its "already high" non-performing loans, while expecting margins to decline due to the rising cost of funds and the potential cuts in the lending rate.

Shares in Tata Motors dropped 3.1 percent as analysts cast renewed doubts on the sales outlook for its key Jaguar Land Rover subsidiary a day after the Indian auto maker missed estimates with its first-quarter results.

Credit Suisse downgraded Tata Motors to "underperform" from "neutral" citing the outlook for JLR.

Shares in Kingfisher Airlines dropped for a sixth consecutive day to a new record low, ending down 10.9 percent on expectations the ailing carrier will report a big April-June net loss later in the day.

Sun Pharmaceutical Industries fell 0.13 percent on profit-taking after India's top drug maker by market capitalisation hit a record high at 689.90 rupees after reporting a 59 percent surge in quarterly net profit.

However, IT services stocks extended a rally this week after U.S. rival Cognizant Technology Solutions on Monday stood by its full-year revenue forecasts, reducing some of the worries about the outlook for the outsourcing sector.

Infosys shares rose 1.4 percent higher adding 4.75 percent for the week, its biggest weekly gain since the week ended on February 17, while Tata Consultancy Services gained 1.7 percent on Friday.