The rupee is expected to trade down, taking direction from the stock market amid worries over a slowdown in foreign investment in Asia's third-largest economy. Bonds are expected to be flat. Stock traders expected sentiment to be hit by reports the coalition had not yet finalised names for key ministerial berths.

"Shares should open weak and then take direction from whatever reports we get during the day on ministry formation and the common minimum programme," said Bharat Shah, a director at Vikram Kenia Securities.

Markets are keenly awaiting the coalition's "common minimum programme" (CMP), a statement on policies acceptable to all members of a coalition that includes leftists, centrists and regional parties.

Markets have been hit hard for more than three weeks on fears of a slowdown in economic reforms and foreign investment as it became clear the pro-reform National Democratic Alliance, led by the Hindu nationalist Bharatiya Janata Party, would not return to power.

In his first major speech as prime minister-elect, Manmohan Singh on Thursday said the government would not privatise the country's most valuable company, explorer Oil and Natural Gas Corp, or gas distributor GAIL India Ltd.

Singh, a former finance minister who ushered in India's first economic reforms 13 years ago, said only unprofitable firms would be privatised and state banks would be kept under state control.

The Bombay share index closed 1.48 percent down at 4,932.11, taking its loss over the past month to around 17 percent. It had risen on Wednesday and notched its second-largest gain on Tuesday, bouncing back from the second-largest fall on record the day before.

Foreign funds have now sold nearly $700 million of Indian shares in 12 sessions, well over a sixth of what they had invested this year before political worries set in.

The rupee ended 0.25 percent lower at 45.34 per dollar, weaker than Wednesday's close of 45.23 but above an eight-month low hit earlier this week. Bonds were little changed.

Investor sentiment is also expected to be weighed down by subdued global stock markets and high global oil prices. India imports more than two thirds of its crude oil requirements.