Interest-rate sensitive stocks suchas banking and realty on Tuesday plunged up to 10%, after RBI raised lending rates in order to stem rupee volatility.
Stocks from real estate sector were the worst hit, with Indiabulls Real Estate sinking 9.74% and DLF dropping 7.73%. Oberoi Realty fell by 7.17%, HDIL by 6.64% and Unitech by 6.34% on the BSE.
The BSE realty index ended 5.84% lower at 1,457.29 and was the top loser among 13 sectoral indices.
Banking counters also witnessed massive selling, with Yes Bank plummeting by 9.78%, Canara Bank by 8.64% and Union Bank by 6.60%. Kotak Mahindra Bank dropped by 5.99% and Axis Bank by 5.95%.
Among the blue-chips, ICICI Bank fell by 5.61%, Punjab National Bank by 5.58%, SBI by 4.57% and HDFC Bank 2.37%.
Slump in these stocks pulled down the BSE banking index by 4.83% to 12,821.09. To stem the continuing fall of rupee, RBI last night came out with a slew of measures including hiking the lending rates for banks and sucking up of Rs 12,000 crore, to make the currency dearer.
"Liquidity tightening measures introduced are expected to adversely impact banks and NBFCs that are reliant on short term wholesale funding. Impact was also seen on real estate players that could also get affected," said Nagji K Rita, Chairman & MD, Inventure Growth & Securities.
"Whether the measures will have a sustainable impact remains to be seen .... we see a gradual rupee depreciation and a tight fiscal policy as a solution to India's macro-economic problem, and not higher interest rates," said Sonal Varma, Economist, Nomura.
"There is a risk that the measures could backfire. India's growth is already very weak and tighter domestic liquidity will worsen the financial conditions for corporates and banks, hurting asset quality and growth outlook," Varma added.
Heavy selling in banking stocks sent the BSE benchmark Sensex down by 183.25 points or 0.91% to 19,851.23.
Under the measures announced, RBI raised lending rates for commercial banks by 2% to 10.25% making the loans costlier.
The Marginal Standing Facility (MSF) rate has also been increased to 10.25% from current 8.25%. Repo rate has been left unchanged.
Introduced during the 2011-12 period, MSF allows banks to borrow money from the central bank at a higher rate when there is significant liquidity crunch.