Sensex plummets 1,300 pts as RBI wrongfoots markets; investors lose Rs 6.27 lakh cr

Equities went into a tailspin on Wednesday after the Reserve Bank surprised the market with a mid-cycle rate hike in a bid to tame soaring inflation.The move came just ahead of the Federal Reserves policy decision, with analysts expecting a similar move by the US central bank as well as the focus shifts to combating runaway price rise, exacerbated by geopolitical tensions.After a choppy start, the 30-share BSE Sensex came under massive selling pressure following RBIs interest rate hike, closing 1,306.96 points or 2.29 per cent down at a two-month low of 55,669.03.

Equities went into a tailspin on Wednesday after the Reserve Bank surprised the market with a mid-cycle rate hike in a bid to tame soaring inflation.

The move came just ahead of the Federal Reserve's policy decision, with analysts expecting a similar move by the US central bank as well as the focus shifts to combating runaway price rise, exacerbated by geopolitical tensions.

After a choppy start, the 30-share BSE Sensex came under massive selling pressure following RBI's interest rate hike, closing 1,306.96 points or 2.29 percent down at a two-month low of 55,669.03. This was its third straight session of loss.

Along similar lines, the broader NSE Nifty tanked 391.50 points or 2.29 percent to finish at 16,677.60.

The market capitalization of all BSE-listed companies tumbled by Rs 6.27 lakh crore to stand at Rs 2,59,60,852.44 crore.

Bajaj Finance was the biggest loser in the Sensex pack, tumbling 4.29 percent, followed by Bajaj Finserv, Titan, IndusInd Bank, HDFC Bank, Maruti, and RIL.

Only three constituents managed to finish higher -- PowerGrid, NTPC, and Kotak Mahindra Bank rising to 2.75 percent.

In a move that will raise borrowing costs for corporates and individuals, the RBI on Wednesday after an unscheduled MPC meeting hiked the benchmark lending rate by 40 basis points (bps) to 4.40 percent to contain inflation that has remained stubbornly above the target of 6 percent for the last three months.

The Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das also raised the level of deposits banks are required to maintain a cash reserve by 50 bps to 4.5 percent to suck out Rs 87,000 crore of liquidity from the banking system.

The CRR hike will be effective from May 21.

This is the first-rate hike since August 2018 and the first instance of the MPC making an unscheduled increase in the repo rate (the rate at which banks borrow from the RBI).

''The MPC's decision...is a surprise since it came on the LIC IPO opening date. MPC's proactive move is justified from the perspective of inflation management, but the timing leaves a lot to be desired.

''The above 1,000 point crash in Sensex has soured the sentiments on the opening day of India's largest IPO,'' said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Unmesh Kulkarni, Managing Director Senior Advisor, Julius Baer India, said the MPC's action comes in the wake of concerns that RBI may have under-estimated inflation, and is behind the curve in changing its monetary policy stance.

''The markets have been taken by surprise, and the 10-year benchmark g-sec yield jumped intra-day to 7.40 percent. Given the enhanced government borrowing calendar this year, RBI has a tough job at hand, to manage the market's expectations of yields while seeing the weekly auctions through in a non-disruptive manner,'' he noted.

In the broader market, the BSE midcap gauge slumped 2.63 percent while the smallcap index fell 2.11 percent.

As many as 2,548 stocks declined, while 826 advanced and 101 remained unchanged.

Sectorally, BSE consumer durables fell the most at 3.88 percent, followed by realty (3.31 percent), consumer discretionary goods & services (3.01 percent), healthcare (2.92 percent), and telecom (2.73 percent).

World markets were in a wait-and-watch mode ahead of the Fed's policy decision.

Markets in Seoul and Hong Kong settled in the red, while Shanghai and Hong Kong were closed for holidays.

Bourses in Europe were also trading lower in the afternoon session.

Stock exchanges in the US surged in trade on Tuesday.

Meanwhile, international oil benchmark Brent crude jumped 3.12 percent to USD 108.3 per barrel.

The rupee appreciated 8 paise to settle at 76.40 (provisional) against the US dollar on Wednesday.

Foreign institutional investors offloaded shares worth a net Rs 1,853.46 crore on Monday, according to stock exchange data.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)