The RBI is expected to hold the repo rate steady at its review on Tuesday, a Reuters poll showed, keeping pressure on the government to reduce the fiscal deficit and take steps to remove bottlenecks that are driving up food prices.
However, investors fear the government will hold off on widely anticipated fuel subsidy and retail reforms because of renewed opposition from party and coalition allies, which extended recent falls in state-run oil stocks on Thursday.
Market sentiment was also hit after provisional data showed foreign investors sold a net Rs 372 crore ($66.23 million) of shares on Wednesday, marking a second day of net sales after strong buying earlier this month.
"RBI would maintain status quo on rates, but market would only be a tad disappointed because it's well understood that action is expected and should come from New Delhi," said Phani Sekhar, Fund Manager of portfolio management services at Angel Broking.
The 30-share BSE index fell 1.22 per cent to 16,639.82 points, marking its lowest close since June 6. The 50-share NSE index fell 1.3 per cent to 5,043.00 points. The losses came despite gains in Asian shares, with the MSCI Asia-Pacific ex-Japan index rising 0.6 per cent.
The expiry of derivatives at the end of the session kept trading volatile, especially towards the end of the session. Banks led decliners, with brokers citing heavily selling from foreign investors. Of 20 economists polled by Reuters, 19 expect the RBI to keep the repo rate on hold.
Analysts also don't expect the central bank to deliver a cut in the cash reserve ratio, or the amount of funds that lenders must keep with the RBI, which would have had a more direct benefit to the sector. Private lenderHDFC Bank fell 1.6 per cent, while State Bank of India fell 2.5 per cent.
( Source: economictimes.indiatimes.com)
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