The Reserve Bank of India's abandoning of ‘baby steps approach' to rate hikes did not go down well with the stock market. It sent the Sensex down 463.33 points or 2.44 per cent to close at 18,534.69.
The Nifty lost 136.05 points or 2.39 per cent to close the day at 5,565.25.
All the indices across the NSE and BSE tanked, with the BSE Auto, Bankex and the Realty Index suffering the most. But the volatility indices of both BSE and NSE rose more than three per cent.
“The markets reacted unexpectedly to an expected event using the excuse of a rate hike whereas nobody is noticing the fact that FIIs have turned net sellers since April 25,”said Mr Arun Kejriwal, Founder, KRIS Research.
FIIs were net sellers of Rs 1,178.66 crore worth of equity on the NSE and BSE on Tuesday while DIIs were net buyers for Rs 606.83 crore. Retail investors on the BSE were net buyers for Rs 118.56 crore.
Retail investors seem to be worried about the RBI's stance. “The coming quarters will continue to factor in high inflation and higher input costs for corporates,” said Mr Shailesh Khera, a retail investor who kept away from the market on Tuesday.
It remains to be seen how the RBI's attempt to tackle inflation in the short term and foster growth over the medium term pans out, said market experts.