Markets succumbed to selling pressure in the last leg of trade after Reserve Bank of India raised rates by 25 bps which may weigh on margins and profitability of India Inc as loans would become more expensive.
The S&P CNX Nifty made a gap down opening following jitters across the globe over civil crisis in Greece but the index recovered intra-day and touched at high of 5,447 as the rate hike was along the expected lines.
However, selling seeped during the last thirty minutes of trade as investors digested the likely impact of the rate hike, taking the index to a low to 5,390.
The Nifty finally closed near day's low at 5397, down 51 points and the benchmark Sensex closed at 17,986, down 146 points.
The central bank hiked the key rates for the tenth time since March 2010 to tackle the spiraling inflation. The key rates were hiked by 25 basis points.
The repo rate was raised to 7.5% and the reverse repo rate now stands at 6.5%, while the cash reserve ratio remains unchanged.
The Reserve Bank of India said the policy stance remains anti-inflationary
Analysts said that RBI will raise rates further by another 25-50 bps to anchor inflation which continues to remain stubbornly high around 9.1% for May which will eventually hurt growth.
Analysts expect GDP growth around 7.9% for FY12.
Dilip Bang in the Nirmal Bang monthly note said that markets may continue to remain range bound.
The Nifty support was seen at around 5,450 and 5,379 levels; however resistance was seen at 5,560 and 5,625 levels. Bang recommends investors to avoid overnight positions due to international issues that could affect the Indian markets.
Asian markets also ended in the red.
The Hang Seng Index declined 1.8%, Shanghai Composite Index lost 1.5% and The Nikkei Stock Average also declined 1.7%.
Markets across Europe were down following latest developments in Greece civil war in Athens continued as people went on strike to protest against latest austerity measures.
Greek Prime Minister Papandreou made a statement that he would form a new government Thursday.
