The BSE Sensex was down 244.94 points to close at 19348.34 while the NSE Nifty slipped 76.60 points to finish below 5800 level at 5755.05, weighed down by selling oil & gas, FMCG, telecom and rate sensitives.
Experts feel the failure of the RBI to protect the currency may have spooked the market.
"Some part of the street essentially was looking at a cash reserve ratio (CRR) hike or at least incremental liquidity tightening norms, which is what the RBI has been doing over the last two weeks or so, but since that did not happen maybe there could have been some disappointment," Tirthankar Patnaik, EVP of Institutional Sales at Religare Capital Markets reasoned.
The Reserve Bank of India kept policy rates unchanged today , but the growth projections (GDP) for FY14 revised downwards from 5.7 percent to 5.5 percent.
Perception of an earlier than expected tapering of QE by the US Fed, current account deficit well above the sustainable level of 2.5 percent of GDP for three years in a row and weak investment climate are the major risk factors, says RBI.
Indian rupee reversed all its gains (despite the central bank had taken liquidity measures) seen since July 15 and breached the 60 level again after the Reserve Bank of India said liquidity tightening measures would be rolled back in a calibrated manner as stability is restored to the foreign exchange market, enabling monetary policy to revert to supporting growth with continuing vigil on inflation.
The domestic currency had recovered from a record low of 61.21 to 59 per dollar after the bank had taken liquidity measures since July 15. Today it closed at lowest point since July 9, falling to 60.47 from 59.41 against the US dollar.
Nomura Financial Advisory and Securities, in its report, states that Indian rupee is poised to weaken fundamentally as financing the current account deficit remains challenging. “Since the RBI is leaning against the wind (of INR depreciation) and sounding apologetic about it, there is a growing risk that it will need to enact further measures to tighten liquidity, potentially having to hike the repo rate,” Nomura adds.
According to Nomura, these measures would not only hurt growth, but could also increase credit risk in the system due to increased corporate defaults and rising banking system risks (due to higher non-performing loans). “We remain negative on India’s economic outlook over the next nine months due to deteriorating external finances, feedback effects from a weak INR (and likely policy responses), a poor growth outlook and the election cycle,” Nomura adds.
The BSE Bankex declined more than 1 percent, but oil & gas was the biggest loser on fears that the rupee depreciation may raise import cost for oil marketing companies.
The BSE Oil & Gas Index dropped nearly 4 percent followed by Realty, Power, Auto, FMCG and Metal with 2-3.6 percent losses.
Oil retailers like BPCL , IOC and HPCL were down between 8-11 percent while ONGC crashed 5.6 percent on likely increase in subsidy burden. Monthly diesel price revision may be considered on Wednesday.
Reliance Industries , ITC , Tata Motors , Bharti (to announce Q1 earnings on Wednesday) and Hindustan Unilever slipped 2-4 percent while IT Index gained 0.9 percent on rupee depreciation.
HCL Technologies rose 1 percent ahead of numbers on Wednesday. Goldman Sachs added the stock in its focus buy list.
ICICI Bank , which will also announce its first quarter results tomorrow, lost 0.36 percent.
Dr Reddys Labs closed with 1.7 percent loss after lower-than-expected earnings.
The broader markets hammered quite badly today as compared to benchmarks with the BSE Midcap and Smallcap indices losing 2 percent each.
PSU banks saw heavy selling pressure; Allahabad Bank , Andhra Bank (Q1 results on July 31), Bank of India, Canara Bank , Dena Bank , Indian Bank , OBC, UCO Bank , Union Bank and United Bank dropped 3-5 percent while private sector lender Karnataka Bank slid 8 percent.
Geometric shares plunged 20 percent on poor numbers in June quarter and the IT services provider expects next two quarters to be weak.
National Fertilisers dropped more than 10 percent after Empowered Group of Ministers cleared the offer for sale that will be held on Wednesday. The floor price will be declared today evening, says divestment secretary.
Declining shares outnumbered advancing ones by 1553 to 697 on the Bombay Stock Exchange.
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