Benchmark indices plummeted sharply following the Reserve Bank of India's (RBI) announcement to maintain key interest rates unchanged.
The decision, made by RBI's Monetary Policy Committee (MPC), saw the S&P BSE Sensex nosedive by 584.53 points to 71,567.47, and the NSE Nifty50 drop by 164.40 points to 21,766.10 at 11:30 am.
While many anticipated the RBI's decision, the retention of the "withdrawal of accommodation" stance by the MPC dashed hopes for a potential rate cut in the near future, exacerbating the market's downturn.
This development particularly impacted bank and financial services stocks, which initially showed promise at the beginning of the session but later succumbed to the negative sentiment.
The Nifty Bank witnessed a 0.9 percent decrease, while the Nifty Financial Services sector experienced a decline of over 1 percent.
Analysts pointed to the RBI's continued focus on curbing inflation, aiming to stabilize it at 4 percent, as the primary reason behind the prolonged tight liquidity in the banking system.
Stocks of major banks took a hit during intraday trading. Axis Bank and ICICI Bank saw drops exceeding 2 percent each, while Kotak Mahindra Bank suffered a nearly 2 percent decline. HDFC Bank recorded a downturn of nearly 1.3 percent.
FMCG stocks also contributing to the market's dip. The Nifty FMCG index witnessed a decline of over 1.2 percent during the session.
Economists following the announcement expressed skepticism regarding any immediate changes in the RBI's stance or rate cuts before the latter half of FY25, highlighting the cautious approach adopted by the central bank in navigating the economic landscape.
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