Mumbai: The benchmark BSE Sensex Tuesday snapped its four-day winning run and fell by 115 points to 28,071.93 as the Reserve Bank disappointed the market by keeping the key policy rate unchanged citing inflationary concerns.
But, support came form buying in select banking stocks and a strong rupee.
Besides, the reaction to RBI status quo was largely tepid as the "policy was in line with the street expectation," said Alex Mathews, Head Research at Geojit BNP Paribas Financial.
In its third bi-monthly policy review today, RBI kept the short-term lending rate, or repo rate, unchanged at 7.25 percent and the cash reserve ratio (CRR), the amount of deposits lenders park with RBI, at 4 percent.
Retaining economy growth forecast at 7.6 percent for 2015-16, the apex bank said outlook was improving gradually.
Banking shares, like SBI, ICICI Bank and Axis Bank, closed up but HDFC Bank ended 0.57 percent lower.
Rupee, which ended higher against dollar in previous session, today strengthened by over 25 paise.
This put pressure on IT companies, including TCS, Infosys and Wipro, which earn most of their revenues in US currency.
In highly volatile trade, the 30-share BSE index after rising to touch the day's of 28,264.72 points in early trade, quickly slipped into the negative terrain and dipped below the 28,000-mark to touch a low of 27,866.12 before the RBI policy announcement.
However, it tried to recover after the RBI kept key policy rates unchanged and trimmed most of losses to close the session 115.13 points or 0.41 percent lower at 28,071.93.
The gauge had rallied by 727.83 points in the previous four straight sessions.
On similar lines, the 50-share Nifty, after moving both ways, settled with a loss of 26.15 points or 0.31 percent at 8,516.90. Intra-day, it dipped below the 8,500-mark to hit a low of 8,448.25 and touched a high of 8,565.15.
Broader markets, however, outperformed Sensex as investors widened their positions lifting the mid-cap index by 1.11 percent, while small-cap index gained 0.67 percent.
In overseas markets, European shares edged higher in choppy trade. Key benchmark indices in the UK and Germany were up 0.23 percent to 0.27 percent, while France's index was off 0.26 percent.
Asian stocks ended mixed as indices in China and South Korea firmed up by 0.97 percent to 3.69 percent, while indices in Hong Kong, Japan, Singapore and Taiwan moved down by 0.02 percent to 0.16 percent.
Pramit Brahmbhatt, Veracity Group CEO said: "RBI has not raised the rates to support the currency, which is already trading weak against the dollar. Local equities reacted immediately and lost over 1 percent during the day, but towards the end it tried to recover slightly though ended on a weak note."
Out of 30-share Sensex pack, 18 scrips ended lower.
Major losers were Hero MotoCorp (2.73 percent), GAIL (2.53 percent), ONGC (2.40 percent), Wipro (2.16 percent), Tata Motors (1.85 percent), Infosys (1.78 percent), RIL (1.30 percent), HDFC (1.27 percent), Bharti Airtel (1.25 percent) and Lupin (1.16 percent).
However, Tata Steel rose by 3.39 percent, followed by Hindalco 3.36 percent, Coal India 2.82 percent, SBI 2.54 percent and M&M 2.18 percent.
Among the BSE sectoral indices, consumer durables fell by 0.77 percent, followed by oil&gas 0.69 percent, teck 0.65 percent and ITC 0.59 percent, while metal rose by 2.69 percent, auto 1.00 percent and bankex 0.47 percent.
However, the market breadth continued to remain positive 1,619 stocks finished higher, while 1,271 declined and 127 ruled steady.
Total turnover rose to Rs 4,468.92 crore from Rs 3,727.57 crore yesterday.
