Indian shares fell for the first time in five sessions as sectors sensitive to interest rates such as banks and real estate dropped after the central bank kept its policy rates unchanged, voicing a more hawkish stance than expected. Though analysts had largely expected rates to stay on hold, especially on the eve of the federal budget announcement, the markets had not ruled out a surprise cut in the repo rate and some had anticipated such a move would at least come by April.
Instead, the Reserve Bank of India's statement warning about inflationary pressures from oil prices, the government's finances and the weaker rupee cast doubts about both the timing and magnitude of future rate actions. The focus is now expected to shift to the federal budget for the next fiscal year to be unveiled on Friday, which investors will scrutinise for how it will impact specific sectors.
"By keeping rates unchanged, the RBI is signalling that it does not expect inflation and inflationary expectations to reduce in the immediate future," said Kishore Bang, co-founder & director at investment firm Nirmal Bang Group. The main 30-share BSE index fell 1.4 percent, marking its biggest one-day loss since March 5. The 50-share Nifty index lost 1.5 percent, in its biggest fall since February 27.
Banks were among the leading decliners, with the sector's index falling 2.7 percent. They had rallied this week after the RBI surprised the markets with a cut in the cash reserve ratio late on Friday, a move that was seen injecting liquidity in a sector facing a cash crunch.
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