Mumbai: Interest rate sensitive banking and auto stocks were battered today, with ICICI Bank, HDFC Bank and Tata Motors losing in the range of 2-4 percent on BSE.
Market analysts said investors feared the Reserve Bank increasing key policy rates would lead to higher interest rates dampening the business potential of lenders and auto companies.
The RBI Tuesday hiked short-term lending and borrowing rates by 0.25 per cent each, paving way for costlier auto and home loans.
Edgy investors' took away profit, sending the financial and auto stocks down by upto 4.21 percent. Top lender ICICI Bank tumbled 4.21 percent to close at Rs 1,038.30, while HDFC Bank slipped by 2.85 percent to settle at Rs 2,087.
Market observers said profit-booking pulled down key stocks on fears that home, auto loans may cost more after the increase in key policy rates.
"Investors went for profit-booking and wore a cautious approach because of the uncertainty in the market," Religare Securities executive vice president Rajesh Jain said.
The entire banking sector succumbed to the weak market sentiment, with Yes Bank, Punjab National Bank, Kotak Mahindra Bank and Indusind Bank closing in the range of 1.17-2.95 percent.
Pulled down by these stocks, the BSE banking index closed 2.22 percent down at 12,365.40.
"Banks' stocks retreated in the wake of rate hike announced by the RBI," IIFL Head of Research Amar Ambani said.
Further, in the auto space, Mahindra & Mahindra (M&M) and Tata Motors were the biggest laggards, falling by 2.25 percent and 1.91 percent, respectively. Bajaj Auto declined by 0.86 percent while Maruti Suzuki lost 0.22 per cent during the day trading.
In the realty sector, DLF fell by 0.67 per cent.
Meanwhile, amid a sea-saw trade, the BSE key index Sensex closed at 18,969.45 level, down 181.83 points from its previous close.