Data on Friday showed Asia's third-largest economy expanded 8.9 per cent in its fiscal second quarter from a year earlier, as higher interest rates and a strong rupee dragged on manufacturing and exports.
The figure was in line with a Reuters poll forecast of 8.8 per cent but below growth of 9.3 per cent in the previous quarter, and analysts said the economy was likely to clock 8.3-8.8 per cent expansion in the 2007/08 fiscal year to next March.
"We expect moderation to continue in the industrial sector based on higher interest rates and a possible decline in the equity markets," said Indranil Pan, chief economist at Kotak Mahindra Bank in Mumbai.
"Overall, we expect GDP growth for the full year at 8.7 per cent with services performing robustly." The stock market extended gains after the data to stand 1.8 per cent up on the day.
The rupee firmed to 39.63/64 per dollar and the yield on the benchmark 10-year bond held at 7.90 per cent.
India, the world's fastest-growing major economy after China, grew 9.4 per cent in the fiscal year that ended in March 2007, its strongest rate in 18 years, and the central bank expects expansion to slow to 8.5 per cent this fiscal year.
Growth has averaged 8.6 per cent a year in the past four years, which has attracted global investors' attention, fuelling a stock market boom and pushing firms to expand capacity.
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