Markets recovered some of its losses in late trades, amid a volatile trading session on Friday, after the RBI governor Raghuram Rajan indicated the marginal standing facility rate would be lowered more than the quantum of repo rate hikes.
Post the policy announcement markets plunged after the Reserve Bank of India stunned the market by hiking repo rate by 25 basis points to 7.5% citing inflationary pressures while announcing a sharp cut in MSF (Marginal Standing Facility) rate by 75 basis points to 9.5%.
At close, the 30-share Sensex ended down 383 points at 20,264 and the 50-share Nifty ended down 103 points at 6,012.
In the broader markets, the mid and smallcap indices closed lower by 1% each, outperforming the BSE benchmark index which was down nearly 2%.
On Thursday, the Sensex ended 684 points higher at nearly 3-year high recoding its biggest single day gains since May 2009 in absolute terms.
The 50-share Nifty added 216 points at 6,116 levels.
Repo rate is the rate at which RBI lends to commercial banks generally against government securities.
The increase in the Repo rate will increase the cost of borrowing and lending of the banks which will discourage the public to borrow money and will encourage them to deposit.
What is equally worrisome is that inflation at the retail level, measured by the CPI, has been high for a number of years, entrenching inflation expectations at elevated levels and eroding consumer and business confidence.
Although better prospects of a robust kharif harvest will lead to some moderation in CPI inflation, there is no room for complacency, the RBI said.
After touching an intra-day low of 62.60, the Indian currency was trading at Rs.62.35-a-dollar compared to Thursday's closing level of 61.77/dollar.
Sectors & Stocks
Consumer Durables, Power and Health Care indices were the only indices which closed in the positive territory, up 0.1-0.3%.
Rate sensitive pockets like Realty and Bankex indices, gave off 4-7% followed by Capital Goods, Auto, PSU, Metal, Oil & Gas and FMCG indices which ended lower by 1-3%.
The only gainers among the Sensex-30 were Gail India up 3.5%, Sun Pharma, Coal India, BHEL, Wipro, Mahindra & Mahindra and NTPC, up 0.5-1.5%.
ICICI Bank, L&T, Sesa Goa and Hindustan Unilever down 4-5% were the major losers in today's trade.
HDFC Bank, Hindalco, SBI, Tata Steel, HDFC, ONGC, Bajaj Auto, Tata Motors, Hero MotoCorp and Bharti Airtel down 3-4% were the other notable losers.
The market breadth was negative. 1,399 stocks declined while 937 stocks advanced on the BSE.
World shares steadied at a five-year high on Friday and bond and commodity markets were consolidating a week of major gains after the U.S. Federal Reserve's shock decision to keep its stimulus intact.
After the sharp moves of Wednesday and Thursday, Asian and early European trading was largely subdued as investors took stock of their positions and locked in some of the gains, with half an eye on German elections on Sunday.
The pan-European FTSEurofirst 300 share index inched down 0.1% in opening trading, core and peripheral euro zone bonds were little changed, while the euro was holding near an eight-month high after its best week since July.
In Asia, Japan's Nikkei share average fell 0.2%, stepping back from two-month highs as investors locked in profits on recent gainers before a long weekend.