Stock indices plunged following a cautious outlook by the Reserve Bank of India (RBI) and below expectation policy rate cut by the apex bank on Friday. Market was disappointed following RBI’s observation that there was little room left for further monetary easing.

The BSE Sensex and NSE Nifty, which had gained in the past weeks with the hope of substantial rate cut, reacted to the 25 basis point repo rate cut and shed early gains. The Sensex plunged 160 points or 0.81 per cent to close at 19575.64 while the NSE Nifty dropped 55.35 points or 0.92 per cent to close at 5944.

Banking stocks were hit as they might have to make some additional provisioning as per RBI’s observations on External Commercial Borrowing (ECB) loans, said market analysts.

SBI was down 3.60 per cent, ICICI Bank 3.57 per cent, and HDFC Bank 1.60 per cent on the BSE, while IDFC was down 3.173 per cent on the NSE.

PSU and auto stocks also witnessed selling pressure. Tata Motors was down 3.76 per cent and GAIL (India) 2.99 per cent on the BSE. Among sectoral indices, the BSE Bankex was down 2.40 per cent, PSU 1.52 per cent, auto 1.5 per cent and realty 1.39 per cent. However, the metal index closed with a gain of 1.44 per cent. Jindal Steel closed with a gain of 4.22 per cent, Tata Steel was up 2.27 per cent and Hindalco closed with a gain of 2.30 per cent.

“The market was reacting to the credit policy and the indices were down partly due to profit-booking. Banking stocks were the worst affected. The RBI has made some observations on ECB loans as a result of which banks will need to make certain higher provisioning which will affect their balance-sheet and cash flow,” said Deven Choksey, Managing Director, KR Choksey Share and Securities.

Rupee drops 13 paise

The rupee depreciated further by 13 paise to close at 53.94 against the dollar at the inter-bank foreign exchange market on Friday on the back of weakness in domestic equities despite key rate cut by the RBI. Dollar demand from importers also weighed on the rupee, while sustained capital inflows and weak dollar overseas limited the fall to certain extent, a forex dealer said.

Dollar index was down by 0.25 per cent against a basket of six major global currencies ahead of monthly U.S. jobs figures.