Banking shares today dragged down the stock markets for first time in six days with the benchmark S&P BSE Sensex sliding 211.45 points to 20,090.68 after the RBI took additional steps to tighten liquidity in a bid to curb exchange rate volatility.
Financial stocks bore the brunt of the Reserve Bank's steps, with HDFC Bank, ICICI Bank, HDFC and SBI contributing a combined 164 points to the 30-share index's decline.
The RBI reduced the liquidity adjustment facility for each bank from 1 per cent of net demand and time liabilities to 0.5 per cent, limiting access to borrowed funds from the central bank. It also asked banks to maintain a higher average cash reserve ratio of 99 per cent of the requirement on a daily basis as against 70 per cent earlier.
While the rupee strengthened on the back of the RBI's measures, stocks declined. Six out of 10 shares on the BSE fell and investor wealth dropped by Rs 78,000 crore today.
The S&P BSE Bankex plunged 4.61 per cent, the most among sectoral indices. Yes Bank, which posted a 38 per cent hike in Q1 net profit to Rs 400.84 crore, declined 12.6 per cent.
"Markets sold off sharply on the back of fresh RBI measures," said Sanjeev Zarbade, vice president – private client group research at Kotak Securities. "Due to these measures, banks having higher bulk borrowing would get impacted more as bond yields, CP and CD rates are likely to rise sharply. Even other sector stocks that are sensitive to interest rates witnessed selling pressure."
The Sensex, which had climbed to a 30-month high yesterday, started weak and fell further below the 20K-mark to a low of 19,994.25. It closed at 20,090.68, a fall of 1.04 per cent. In the previous five days, it had risen 450.90 points or 2.27 per cent.
The Nifty index on the National Stock Exchange dropped 87.30 points, or 1.44 per cent, to 5,990.50. The SX40 index on the MCX-SX fell 117.61 points, or 0.97 per cent, to 11988.82.
Besides cautious trades ahead of monthly expiry of derivatives, brokers said a mixed trend in the global markets also affected local stocks. Asia closed mixed, while European markets were higher in early deals.
Asian stocks closed mixed after a private survey showed manufacturing weakened further in July in China. Key indices in China, Japan and Taiwan fell, while stocks in Hong Kong, Singapore and South Korea finished with gains.
In Europe, stocks