RBI measures pull Sensex down 211 points, Nifty below 6000

Markets ended over 1% lower, snapping a five-day winning streak, amid a sell-off in bank shares after the central bank late Tuesday imposed fresh restrictions on commercial banks' access to cash.

The 30-share Sensex ended down 211 points at 20,091 and the 50-share Nifty slipped 87 points to close at 5,991.

On Tuesday, the RBI has capped the total quantum of funds available under liquidity adjustment facility (LAF) to 0.5% (lowered from 1%) of individual bank’s net deposits and time liabilities (NDTL), which would be effective from July 24, 2013.

The earlier imposed cap on overall allocation of funds at Rs 75,000 crore under LAF stands withdrawn. It has also increased the requirement of minimum daily cash reserve ratio (CRR) maintenance to 99% from 70%, which would be effective from first day of fortnight beginning July 27, 2013.

Following the RBI's measures, the rupee today gained 65 paise to 59.11 in late trade at the Interbank Foreign Exchange market on fresh dollar selling by exporters after the RBI anno

Meanwhile, bond yields surged after the RBI's intensified defence of the beleaguered rupee raised concerns about the cost to the economy if the attempted rescue failed.

The benchmark 10-year bond yield hit a 14-month high of 8.50%, up 33 basis points on the day and 95 basis points since the RBI's first round of measures on July 15.

The one-year overnight swap rate jumped to 9.30%, its highest since September 2008 when the collapse of Lehman Brothers was roiling global markets.

In Asia, renewed worries about the outlook for China's vast manufacturing sector trimmed gains in Asian shares and hit oil and copper prices and currencies exposed to Chinese demand. Shanghai Composite was down 0.5% while Nikkei ended 0.3% lower. Hang Seng gained 0.2% while Straits Times ended up 0.5%.

European markets were trading firm as signs of a recovery in France and strong sales from tech giant Apple lifted European shares on Wednesday, offsetting the impact of disappointing Chinese factory data, which knocked oil and copper prices lower. CAC, DAX and FTSE-100 were up 0.5-0.9% each.

The Bankex was the top loser among the sectoral indices on the BSE, down 4.6% followed by Capital Goods, Metal, COnsumer Durables, Power, Auto and FMCG indices.

Banking shares arhammer with including State Bank of India (SBI), Punjab National Bank, Canara Bank and Bank of India ended down 3-8% after the Reserve Bank of India (RBI) imposed more measures to tighten liquidity to stabilize Indian rupee.

Allahabad Bank, Corporation Bank, Dena Bank, Federal Bank, Indian Bank, Indian Overseas Bank, Oriental Bank of Commerce, Punjab and Sind Bank, Union Bank of India and Untied Bank of India are quoting at their 52-week lows. Most of these banks ended down 3-8.5% on the Bombay Stock Exchange (BSE).

Among private banks ICICI Bank, HDFC Bank and HDFC ended down 3-3.7% each while Yes Bank, IndusInd Bank and Kotak Mahindra Bank ended down 5-12% each.

Other Sensex losers include Hindustan Unilever, L&T and Mah&Mah.

In the broader market, the BSE Mid-cap and Small-cap indices ended down 1.4-1.8% each.

Market breadth was weak with 1,525 declines and 773 advances on the BSE.