The BSE Sensex plunged by 661 points on Tuesday to 27,188.38 as RBI took a cautious stance on the economic recovery even as it cut policy rates by 25 bps, while forecast of a deficient monsoon added to the rout.
The RBI cut interest rate by 0.25% for the third time this year but hinted there may not be any more cuts in the near-term, sending stock markets in a tizzy.
Inflation, however, still remains a worry for the bank as it expects price rise to remain subdued till August before rising to 6% by January 2016.
Meanwhile, monsoon is expected to be "deficient" as the Met department today gave "below normal" forecast for rains in the country which is likely to trigger fears of a drought.
Realty, banking and auto suffered the most as selling remained unabated throughout the day. "RBI expects the inflation to tick higher from here owing to higher oil prices, below normal monsoon, and fall in crop output. The rise in input costs may further impact the profitability of the already ailing India Inc," said Hiren Dhakan, associate fund manager at Bonanza Portfolio.
After opening in positive terrain, the 30-share index touched day's high of 27,902.53. After the RBI monetary policy was announced, it nosedived to hit day's low of 27,146.68 before settling at 27,188.38 points. It went down 660.61 points or 2.37%.
This is index's biggest single day fall since May 6. The wide-based NSE Nifty slipped below the crucial 8,300-level by plunging 196.95 points or 2.34% to settle at 8,236.45. Intra-day, it shuttled between 8,445.35 and 8,226.05.
"Adding to pessimism, Indian Meteorological Dept (IMD) latest report on monsoon indicates delay and downgrade in monsoon forecast, further dampened the sentiments," said Jayant Manglik, President-retail distribution of Religare Securities.
Furthermore, weakness in the rupee which fell by 26 paise to Rs 63.96 (intra-day) against the dollar also weighed on the sentiments.
Barring Airtel, all Sensex stocks ended in red. SBI topped the list by falling 4.28%, followed by Axis Bank by 4.20%, ICICI Bank lost 3.70%, HDFC 3.55% and HDFC Bank 2.65%.
"As expected anything less than 50 bps is not being welcomed by the market. RBI has highlighted risk from below normal monsoon, food inflation, increase in crude prices and external environment," said Vinod Nair, head-fundamental research at Geojit BNP Paribas Financial Services.
Other prominent losers on the Sensex were Hindalco, ITC, Hero MotoCorp, Cipla, HUL, Bajaj Auto, M&M, Wipro, Tata Steel, Sun Pharma, L&T and Coal India.
Selling was also witnessed in broader markets with mid-cap index falling 2.22% and small-cap down 2.06%. Among the BSE sectoral indices, realty slumped by 3.83%, followed by banking 3.46% and FMCG 2.83%.
Total market breadth continued to be negative as 1,875 stocks declined and 804 advanced, while 104 ruled steady. The total turnover jumped to Rs 3,086.68 crore from Rs 2,699.25 crore on Monday.