With index heavyweight Reliance Industries (RIL) coming off by 1.4% to R900.75 and banking stocks under pressure ahead of a possible rise in interest rates on Thursday, the Sensex gave up 176 lost points on Wednesday to close at 18,132.24.
Volumes were relatively thin both in the cash and derivatives segments at R9,656 crore and R83,886 crore respectively, well below their six-month averages of R11,981 crore and R1.26 lakh crore. The breadth was not too poor with 1.3 stocks declining for every advance.
?The market decline was a sign of nervousness ahead of the decision on interest rates by the central bank,? said Piyush Garg, CIO, ICICI Securities who added that the advance tax payments by companies seemed to be more or less in line with expectations.
On Tuesday the increase in the wholesale price index, a gauge of inflation rose 9.06% for May fuelling expectations of a further interest rate hike by RBI.
While real estate stocks too came off on Wednesday, among the defensive sectors , IT stocks felt the heat of the broad based selling. FMCG stocks like Dabur, Godrej Industries and Marico however, did well gaining 3% in a declining market.
Market participants are closely watching the support levels of 5,400 and 18,000 for the benchmark indices Nifty and Sensex respectively.
?Given the range bound movement of the last one month and rebound near this mark, 5,400 has emerged as a very crucial psychological support for the Nifty. It would be essential for the market to breach below this level to ensue a significant correction on the downside, ? said Savio Shetty, derivatives expert at Prabhudas Liladhar.
Foreign institutional investors (FIIs) have been net sellers in 2011 so far, selling Indian equities worth R12,263 crore while domestic institutions have bought equities worth R15,410 crore. On Wednesday, while DIIs bought stocks worth R141 crore, FIIs sold equities amounting to R170 crore, as per exchange data.