Sensex sinks as RBI tightens…Nifty below 5450

The Indian market resumed its downtrend, with the main stock indices closing near the low point of the day, after the RBI hiked rates by 25 bps and raised its inflation estimate amid persistent worries over the global uncertainties.

The RBI increased the repo rate and the reverse repo rate by a quarter point to 6.75% and 5.75%, respectively. It also increased the estimate of inflation for the current fiscal year to ~8% from a previous forecast of 7%.



The central bank said it sees risks to economic growth from surging global commodity prices, especially crude oil. It also raised the red flag on a pick-up in non-food manufactured products.

Earlier, the Indian stock indices had recovered after Japanese shares rebounded from an early morning selloff and the yen moderated from a new record high versus the dollar.

"While the Indian markets have in recent days responded to global events, the fact is that domestic macroeconomic conditions remain challenging. Inflation continues to be the biggest bugbear, prompting the RBI to keep raising rates gradually. Inflation may not cool off materially till there is a meaningful softening in global commodity prices, particularly crude oil. That means the RBI will hike rates by at least another 50 bps in the coming months," says Amar Ambani, Head of Research (India Private Clients) - IIFL.

The BSE Sensex lost 209 points to close at 18,149. It had earlier touched a day's high of 18,354 and a day's low of 18,104. It opened at 18,227. While, the NSE Nifty lost 65 points to close at 5,446.

In Asia, the Nikkei closed down 1.4% after losing as much as 4% while the Topix fell 0.8% after briefly turning positive.

In other Asian markets, the Hang Seng dropped by nearly 2% while the Shanghai Composite in China fell by over 1%. The Kospi in South Korea and the S&P/ASX 200 index in Australia also rebounded.

European indices opened with a positive bias and witnessed accelerated gains later on. The key stock indices in the UK, Germany and France were up 0.8%, 0.9% and 1%.