A day after the Reserve Bank of India (RBI) announced measures to tighten liquidity in a bid to curb rupee volatility,domestic markets fell sharply as the moves raised concerns over hopes of a rate cut in the central banks upcoming policy meet and also on growth of the economy.
The Sensex at the BSE fell by up to 385 points on Tuesday before recovering to close the day at 19,851.23 with a fall of 0.91 per cent or 183.25 points.
The broader Nifty at the National Stock Exchange fell by 75.55 points or 1.25 per cent to close at 5,955.25. The fall was,however,central to the Indian markets as other major Asian markets traded in the green.
Meanwhile,the provisional data at BSE shows that foreign institutional investors sold equities worth a net of Rs 357 crore on Tuesday.
RBI on Monday announced to limit the allocation of funds to banks under the liquidity adjustment factor at Rs 75,000 crore and raised the marginal standing facility rate at 10.25 per cent. The announcement spooked the rate-sensitive banking and real estate stocks. The banking index at the BSE fell by 4.8 per cent.
Several major banks fell by over 5 per cent during the day. Yes Bank saw its share price tumble by 9.8 per cent and Canara Banks shares fell by 8.6 per cent. While State Bank of India lost 4.6 per cent,ICICI Bank and Axis Bank witnessed their shares fall by 5.6 and 6 per cent,respectively. The real estate index,too,fell by 5.8 per cent during the day and DLF and Indiabulls Real Estate saw their shares fall by 7.7 and 9.7 per cent,respectively.
The banks and the other rate sensitive stocks remained under pressure as the new move may eliminate excess liquidity from the system, said Alex Mathews,head of research,Geojit BNP Paribas Financial Services.
Market experts feel that the move of this sort was expected from the RBI. The intention is to tighten the liquidity as it was very easy for speculators to borrow in the money market and play in the currency market. RBI has now curtailed the liquidity available to speculators and also jacked up the cost of that liquidity, said Nand Kumar Surti,CEO,JP Morgan AMC.