Mumbai: The BSE Sensex was battered down nearly 1 percent on Tuesday on fears of a quick-succession rate increase by the Reserve Bank following its quarter-point hike in key rates, as it fights sticky inflation.
The Reserve Bank of India (RBI) raised interest rates by 25 basis points, as expected, to clamp down on resurgent inflation, warning higher food prices could become entrenched if steps to boost output are not taken.
"Clearly, the RBI stance indicates that there are more tightening on the way," said Sujan Hajra, chief economist at brokerage Anand Rathi.
"And our sense is that in the current financial year we will see another 25 basis points hike, and perhaps in the first quarter of FY12 another 25 (bps)."
Interest rate sensitives -- BSE banking index, BSE realty index and BSE auto index -- dropped between 1.1 percent and 2.3 percent.
The 30-share BSE index shed 0.95 percent or 181.83 points to 18,969.45, with 19 components closing in the red.
Foreign funds have pulled out around USD 892 million from Indian equities so far this year, with the main index declining 7.5 percent.
Leading lenders State Bank of India, ICICI Bank and HDFC Bank declined between 0.5 percent and 4.2 percent.
Automobile majors Maruti Suzuki, Mahindra & Mahindra, Bajaj Auto, and Tata Motors shed between 0.2 percent and 2.3 percent.
Top-listed real estate firm DLF dropped 0.7 percent.
Separately, HSBC Securities downgraded DLF to "neutral" from "overweight".
Hindustan Unilever, a unit of Anglo-Dutch Unilever Plc, dropped 5.5 percent to 281.65 rupees, its lowest close in more than four months, after it said its quarterly net profit slipped as mounting costs weighed on margins.
Declining shares outpaced advancing ones in a ratio of 1.4:1 on a low volume of 259 million shares.
The 50-share NSE index shed nearly 1 percent to 5,687.40 points.
World equities as measured by the MSCI All-Country World Index was down 0.2 percent by 1036 GMT, while the emerging markets index slipped 0.1 percent.