Sensex tumbles 347 points as RBI turns cautious

The BSE Sensex fell sharply by about 350 points as RBI took a cautious stance on the economic recovery even as it cut policy rates by 25 basis points.

The RBI governor Raghuram Rajan said he has decided to front-load the monetary policy easing.

"We felt it was better to front-load the rate cut and then wait for data even as there are mixed indicators of economic recovery and growth was subdued in investment and trading," he said.

The 30-share index, which gained 53.54 points in the opening trade, fell by 347.03 points or 1.24 per cent to 27,501.96 at 1130 hrs. The barometer had gained 342.28 points in the previous two sessions.

The wide-based National Stock Exchange index Nifty dipped below the crucial 8,400-mark by plunging 93.5 points, or 1.11 per cent, to trade at 8,339.90 points.

No change in Cash Reserve Ration (CRR) in its policy by the RBI also accelerated selling, they said.

The BSE banking index fell 0.96 per cent to 21,188.07 with SBI falling by 1.80 per cent, HDFC Bank by 1.02 per cent, Axis Bank by 0.90 per cent and ICICI Bank by 0.66 per cent.

On similar lines, the BSE Realty was trading 0.86 per cent down at 1,549.01, as shares of DLF dropped by 0.30 per cent, Unitech by 1 per cent and Sobha by 1.82 per cent.

While the RBI cut the repo rate from 7.5 per cent to 7.25, it left all other policy tools like cash reserve requirement unchanged at 4 per cent and Statutory Liquidity Ratio (SLR) at 21.5 per cent.

In the overseas markets, Asian stocks edged lower after an encouraging reading on US manufacturing activity in May increased the likelihood that the US Fed will raise interest rates this year.