Mumbai: The Reserve Bank's decision on Wednesday to hold the policy rate weighed heavy on the market, but the Sensex quickly recovered in a volatile trade, closing lower by only 45 points at 28,290.
Banking stocks took a heavy pounding.
RBI left interest rate unchanged at 6.25 percent, contrary to market expectations, and shifted the policy stance to 'neutral' from 'accommodative'. Its projection of 7.4 percent growth for 2017-18 is a sign that RBI expects economy to rebound sharply from the demonetisation impact, which came across as a positive that contained the losses.
Governor Urjit Patel today lowered the GDP growth forecast to 6.9 percent for 2016-17.
Because of the shock factor, the 30-share index at one point plunged 186 points. But some fag-end buying in banking and other stocks helped the index recover, which settled at 28,289.92, still down 45.24 points, or 0.16 percent.
The gauge had lost 104.12 points in the previous session.
However, the wider Nifty after hitting a low of 8,715 closed in the green by rising 0.75 point, or 0.01 percent, at 8,769.05.
The reverse repo rate -- at which RBI absorbs excess liquidity -- is retained at 5.75 percent.
Meanwhile, the rupee continued to trade higher at 67.20 (intra-day) against the American currency, which supported the late recovery in stocks.
Interest-sensitive stocks took a hammering, dragging the BSE banking index down by 0.37 percent. PNB, Axis Bank, ICICI Bank, Kotak Bank, IndusInd Bank, Bank of Baroda and SBI and ended lower by up to 1.32 percent in a knee-jerk reaction to the RBI decision.
Other laggards were Dr Reddy's, Sun Pharma, Hero MotoCorp, Infosys, ITC, NTPC, Tata Steel, RIL, Maruti Suzuki and HUL.
Out of the 30-share Sensex pack, 15 ended lower while 14 led by Coal India, GAIL, M&M, Lupin, Tata Motors, Cipla, TCS and Wipro finished higher and cushioned the fall.
Sector-wise, the BSE FMCG index fell by 0.39 percent, healthcare 0.26 percent and IT 0.18 percent.
In contrast, broader markets were in a better shape with the mid-cap index rising 0.51 percent and small-cap up 0.22 percent.
Meanwhile, foreign portfolio investors (FPIs) bought shares worth a net Rs 201.13 crore yesterday, as per provisional data released by the stock exchanges.
Other Asian markets closed higher, with Japan's Nikkei advancing 0.51 percent, China's Shanghai Index 0.44 percent and Hong Kong's Hang Seng 0.66 percent. European markets too were trading in the positive terrain in their early deals.
Frankfurt's DAX 30 gained 0.27 percent while France Paris CAC climbed 0.69 percent and London's FTSE rose 0.03 percent.
