Sensex Ends Lower Post RBI Policy Review, Banks Hit Hard

Mumbai: RBI's decision to keep rates unchanged caught the stock markets off-guard on Wednesday with a sharp plunge in the Sensex within minutes of the policy announcement amid a heavy pounding of bank stocks, but a quick recovery saw the index limiting its losses at just 45 points.

NSE's Nifty index fared better by closing with a marginal 0.75-point gain at 8,769.05. BSE's Sensex ended the day 45.24 points lower at 28,289.92, after recouping a large part of its intra-day loss of 186 points.

Contrary to market expectations, RBI left interest rate unchanged at 6.25 per cent, and shifted the policy stance to 'neutral' from 'accommodative'. Governor Urjit Patel on Wednesday lowered the GDP growth forecast to 6.9 per cent for 2016-17, but its growth projection of 7.4 per cent for 2017-18 reassured investors to an extent, which restricted the fall.

Some fag-end buying in banking and other stocks helped the Sensex recover, which settled down 0.16 per cent. The gauge had lost 104.12 points in the previous session.

The wider Nifty, however, ended up 0.01 per cent.

"With banks passing on past RBI cut rates, status quo was maintained, but the change in policy stance to neutral and the projection of a 7.4 per cent growth for 2017-18 is a sign that RBI expects economy to swing back swiftly... This in turn was reflected in the short covering towards the close," said Anand James, Chief Market Strategist, Geojit BNP Paribas Financial Services.

The reverse repo rate -- at which RBI absorbs excess liquidity -- is retained at 5.75 per cent.

Meanwhile, the rupee continued to trade higher at 67.19 against the American currency by jumping 22 paise, which supported the late recovery.

Interest-sensitive stocks took a hammering, dragging the BSE banking index down by 0.37 per cent. PNB, Axis Bank, ICICI Bank, Kotak Bank, IndusInd Bank, Bank of Baroda and SBI and ended lower by up to 1.32 per cent in a knee-jerk reaction to the RBI decision.

Other laggards were Dr Reddy's, Sun Pharma, Hero MotoCorp, Infosys, ITC, NTPC, Tata Steel, RIL, Maruti Suzuki and HUL.

Out of the 30-share Sensex pack, 15 ended lower while 14 led by Coal India, GAIL, M&M, Lupin, Tata Motors, Cipla, TCS and Wipro finished higher that cushioned the downfall.

Sector-wise, the BSE FMCG index fell by 0.39 per cent, healthcare 0.26 per cent and IT 0.18 per cent.

In contrast, broader markets were in a better shape, with the mid-cap index rising 0.51 per cent and small-cap up 0.22 per cent.

Foreign portfolio investors (FPIs) bought shares worth a net Rs 201.13 crore Tuesday, as per provisional data.

Other Asian markets closed higher, with Japan's Nikkei, China's Shanghai Index and Hong Kong's Hang Seng all advancing. European markets too were trading in the positive space.