The BSE Sensex fell to its lowest close in two months on Friday, driven down by grim prospects for corporate earnings and fading hopes for a rate cut at next week's Reserve Bank policy review. Growing risk aversion among foreign investors, who have pulled out nearly $1 billion this month after withdrawing more than $13 billion in 2008, added to the gloomy outlook and sent stocks down 7 percent on the week, the biggest fall in four weeks. "There is disappointment on the earnings of large companies, and particularly on their outlook, which is not at all positive," said V.P. Chaturvedi, managing director at Tata Asset Management. "If the March and June quarter earnings are also going to be bad, markets are not likely to recover in the short term," he said. Energy giant Reliance Industries bucked the trend and rose 1.8 percent to 1,153.15 rupees on lower-than-expected drop in quarterly profit. Financial stocks slipped ahead of earnings from top lenders State Bank of India and ICICI Bank on Saturday, amid concerns of rising bad debts in a slowing economy. State Bank fell 4.3 percent to 1,041.75 rupees, ICICI dropped 3.7 percent to 364.30 rupees, while HDFC Bank lost 2.2 percent to 872.35 rupees. A top economic adviser to the prime minister said there was scope to reduce rates to revive faltering growth, but the Reserve Bank of India (RBI) was unlikely to act on Jan. 27 when it announces policy.

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