In a bid to strike a balance between the "inadequate" 25 basis points (bps) and "excessive" 50 bps, the RBI on Wednesday slashed key policy rates by an unconventional 35 bps, but markets slid as it revised down the economy's growth forecast.
Metal, PSU banks, auto and realty stocks contributed most to Sensex's 286-point fall after the Monetary Policy Committee (MPC) lowered the economy's projection of real GDP growth from 7 to 6.9 per cent for 2019-20.
The Sensex closed 286.35 points or 0.77 per cent lower at 36,690.50, while the broader Nifty slipped by 92.75 points to 10,855.50.
RBI Governor Shaktikanta Das said the downward adjustment in the GDP growth projection was warranted by various high frequency indicators pointing to weakening of both domestic and external demand conditions.
"A downside risk to the lowered GDP forecast of 6.9 per cent in FY20 due to growth headwinds in global economy and slowdown in domestic consumption curtailed investors' sentiment," said Vinod Nair, Head of Research, Geojit Financial Services Ltd.
Nair however, added that the RBI's balancing act by adding liquidity to NBFCs, agri and MSMEs will set the wheels of economy on a revival path in H2FY20.
India Bulls Housing Finance was the biggest loser of day, as it shed over 13 per cent followed by Tata Steel, Tata Motors and Mahindra and Mahindra, which declined in the range of 4 to 6 per cent.
Growth slowdown is a major concern in the financial markets and central banks across the globe currently. Asia central banks signalled major concerns on Wednesday about the outlook for economic growth.
In reviewing the global developments, the MPC noted that global economic activity had slowed down since its meeting in June in an environment rendered hostile by elevated trade tensions and geo-political uncertainty.
New Zealand's central bank cut its official cash rate 50 basis points to a record low of 1 per cent. The Bank of Thailand followed suit, cutting its one-day repurchase rate by 25 basis points to 1.5 per cent.
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