The stock markets sank on Tuesday, reacting to the central bank governor’s worries that a poor monsoon would send food inflation shooting up yet again.

The bellwether 50-stock Nifty index fell 2.34 per cent, losing nearly 197 points after RBI Governor Raghuram Rajan’s monetary policy review late Tuesday morning. The index closed at 8,236.

The BSE shed 2.37 per cent, with a 660-point loss. The broader indices didn’t fare much better, with the BSE 200, the mid-cap and small-caps all losing over 2 per cent. The Bank Nifty saw the biggest rout, sinking 3.44 per cent, dragged down by Canara Bank, Axis Bank, ICICI Bank, SBI and YES Bank.

Foreign investors were net sellers to the tune of ₹594 crore on Tuesday, while domestic institutional traders bought net securities of over ₹271 crore. Investor wealth of over ₹1.98-lakh crore was eroded.

While market watchers said that the RBI’s 25-basis-point repo rate cut was in line with expectations, what gave cause for concern was the Governor’s statement on a possible monsoon shock wreaking havoc with inflation and testing the central bank’s limits in controlling it.

Dhananjay Sinha, Economist and research head, Emkay Global Financial Services, said the “negative surprise” for the market was the scaling up of the inflation projection for January 2016 to 6 per cent and downward revision of the real gross value added growth projection for FY16 to 7.6 per cent from 7.8 per cent.

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