Rate sensitive stocks were headed for the worst day in months as the Reserve Bank held key rates unchanged citing rising inflationary pressure. Analysts said the central bank had surprised the market with its stance, which led investors to cut their long positions.
"We were not expecting a rate cut, but we were expecting a CRR cut so that was a surprise," Gautam Chhaochharia of UBS Securities told NDTV Profit.
Banking stocks plunged 3.5 per cent and realty stocks fell 3 per cent. India's biggest realty firm DLF (-5 per cent) was the biggest loser on the Nifty index as home loan rates are likely to remain unchanged. Public sector lenders like State Bank of India (-4.5 per cent), PNB (-4.47 per cent) as well as private lenders Axis Bank (-4 per cent) and ICICI Bank (-3.96 per cent) saw huge selling pressure. Banking stocks had earlier run up sharply on expectations of a rate cut.
Three banking stocks - HDFC Bank, ICICI Bank, and State Bank of India - accounted for over 110 index point fall on the Sensex.
On the Nifty index, 46 of the 50 stocks traded lower. Cairn India (1 per cent), Power Grid (0.8 per cent), Tata Steel (0.8 per cent), and Bajaj Auto (0.5 per cent) were the only gainers.
At 2.10 p.m., the Sensex was down 300 points, or 1.8 per cent, at 16,649, while the Nifty index was down 94 points at 5,045. The rupee was down 45 paise against the dollar at 55.84.
European stocks slipped into the red after a positive start. Earlier, Asian markets ended higher on the back of a victory for the pro-bailout party in Greece. The victory eased fears of an imminent Greek exit from the 17-nation euro currency union that could have had catastrophic consequences for other ailing European nations, the United States and the entire global economy.
(With inputs from AP)