Sell the rallies. The next support for the Nifty lies at 5,300

Today, the Sensex and Nifty fell by 2.44% and 2.39%, taking a knocking from the larger-than-expected rate hike announced by the Reserve Bank of India (RBI) in its annual monetary policy. This is the biggest drop in the market since 25 February 2011. The Sensex plunged 463 points to 18,535 and the Nifty dropped 136 points to 5,565. It is also for the first time since 23 March 2011 that the indices have closed below the 50-day moving average. The support for the Nifty now lies somewhere around 5,300.

The market opened lower on speculation that the RBI would hike policy rates to curb rising prices. Trading was range-bound and hovered about the neutral line in the mid-morning session when it also touched the day's high at about 10.45am. At the high point, the Sensex was up 27 points at 19,025 and the Nifty gained 10 points to 5,711. But as soon as details of the RBI policy trickled in, the indices slipped into negative terrain.

An across-the-board sell-off resulted in all sectoral gauges dipping into the red. In the afternoon, as two of three European benchmarks opened lower and US stock futures indicated a negative trend, the domestic indices continued to reel under pressure. Besides, increasing key rates, the central bank also underlined the need to adopt strong measures that could curb growth in the short term, and this pulled the market down nearly 2.50% by the close. The advance-decline ratio on the National Stock Exchange was a poor 269:1504.

The market has slipped lower each day over the past seven consecutive trading days. Since 1990, the market has been down for seven consecutive trading days 37 times (including the current fall). Of these 37 occasions, it has turned positive on the eighth day 21 times, and stayed negative 16 times.

The broader indices also suffered a similar fate. The BSE Mid-cap index tumbled 1.86% and the BSE Small-cap index slipped 2.08%.

Rate-sensitive sectors were mauled. BSE Auto (down 3.74%), BSE Realty (down 3.11%), BSE Bankex (down 2.91%), BSE Consumer Goods (down 2.65%) and BSE Capital Goods (down 2.51%) were the top losers. There were no sectoral gainers today.

BHEL (up 0.19%) was the solitary gainer among Sensex stocks. Jaiprakash Associates (down 8.05%), Tata Motors (down 5.30%), Bajaj Auto (down 5.02%), Mahindra & Mahindra (down 4.47%) and Larsen & Toubro (down 4.17%) were the top losers on the benchmark.

The RBI today raised its short-term lending (repo) rate and short-term borrowing rate (reverse repo) by 50 basis points each to 7.25% and 6.25%, respectively. This is the ninth time that the central bank has increased its key interest rates since March 2010.

The apex bank also increased the savings bank rate by 50 basis points to 4% from the current rate 3.5%, a move that will give higher returns to depositors in the wake of continuing high inflation. However, the RBI has lowered its economic growth projection for the current fiscal to 8%, compared to the 9% estimate by finance ministry.

Barring the Shanghai Composite, all other Asian bourses settled with losses. Investors in the region are worried that like China and now India, other central banks may also take harsh steps to curb rising prices. Automakers and refining companies pulled the South Korean market down, becoming the worst performer among Asia-Pacific markets today.

The Hang Seng declined 0.37%, the Jakarta Composite fell 0.92%, the KLSE Composite was down 0.23%, the Straits Times slipped 0.83%, the Seoul Composite tumbled 1.27% and the Taiwan Weighted fell 0.69%. Bucking the trend, the Shanghai Composite gained 0.71%. The Japanese market was closed for a local holiday.

Back home, institutional investors were sellers in the equities segment on Monday. Foreign institutional investors were net sellers of stocks worth Rs261.03 crore and domestic institutional investors were net sellers of shares worth Rs150.52 crore.