Mumbai: RBI's decision to keep rates unchanged caught the stock markets off-guard on Wednesday with a sharp plunge in the Sensex within minutes of the policy announcement amid a heavy pounding of bank stocks, but a quick recovery saw the index limiting its losses at just 45 points.
NSE's Nifty index fared better by closing with a marginal 0.75-point gain at 8,769.05. BSE's Sensex ended the day 45.24 points lower at 28,289.92, after recouping a large part of its intra-day loss of 186 points.
Contrary to market expectations, RBI left interest rate unchanged at 6.25 percent, and shifted the policy stance to 'neutral' from 'accommodative'. Governor Urjit Patel today lowered the GDP growth forecast to 6.9 percent for 2016-17, but its growth projection of 7.4 percent for 2017-18 reassured investors to an extent, which restricted the fall.
Some fag-end buying in banking and other stocks helped the Sensex recover, which settled down 0.16 percent. The gauge had lost 104.12 points in the previous session.
The wider Nifty, however, ended up 0.01 percent.
"With banks passing on past RBI cut rates, status quo was maintained, but the change in policy stance to neutral and the projection of a 7.4 percent growth for 2017-18 is a sign that RBI expects economy to swing back swiftly... This in turn was reflected in the short covering towards the close," said Anand James, Chief Market Strategist, Geojit BNP Paribas Financial Services.
The reverse repo rate -- at which RBI absorbs excess liquidity -- is retained at 5.75 percent.
Meanwhile, the rupee continued to trade higher at 67.19 against the American currency by jumping 22 paise, which supported the late recovery.
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 that cushioned the downfall.
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.
Foreign portfolio investors (FPIs) bought shares worth a net Rs 201.13 crore yesterday, as per provisional data.
Other Asian markets closed higher, with Japan's Nikkei, China's Shanghai Index and Hong Kong's Hang Seng all advancing. European markets too were trading in the positive space.
The market breadth was positive, with 1,519 shares ending higher, 1,348 lower and 163 steady. The total turnover on BSE rose to Rs 6,125.92 crore, from Rs 3,387.26 crore registered in the previous session.
"The day started on a cautious note with investors choosing to stay on the fence... However, markets did recover in the last few minutes of trade to finally close the day near the flat line," said Karthikraj Lakshmanan, Senior Fund Manager, Equities, BNP Paribas Mutual Fund.