Investor sentiments were subdued after the central bank maintained status-quo on key lending rates, leading to a barometer index of the equity markets provisionally closing more than 115 points down on Tuesday.
The bearish sentiments were seen in the markets after the Reserve Bank of India (RBI) in its third monetary policy review of the current fiscal decided to keep key lending rates unchanged.
The decision to maintain the status-quo disappointed investors. There was a general consensus in the markets that the current review might be the last chance that RBI had to cut rates in this calendar year.
Markets are doubtful over the RBI's ability for a future easing of the monetary policy in the hindsight that inflation might spiral up again and the US Fed's decision on its own rates is coming up in September.
The wider 50-scrip Nifty of the National Stock Exchange (NSE) closed flat. It was provisionally down 26 points or 0.31 percent at 8,516.90 points.
The Sensex of the S&P Bombay Stock Exchange (BSE), which opened at 28,225.04 points, provisionally closed at 28,071.93 points (at 3.30 p.m.) -- down 115.13 points or 0.41 percent from the previous day's close at 28,187.06 points.
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The Sensex touched a high of 28,264.72 points and a low of 27,866.12 points in the intra-day trade.
"There was disappointment in the markets as investors expected a cut based on current data which showed that the inflation is coming under control, stable macro fundamentals and falling crude oil prices," Anand James, co-head, technical research desk, Geojit BNP Paribas, told IANS.
"Good monsoon and containment of inflation coupled-with rupee stability and falling commodity prices still gives the RBI room to cut rates in the coming time."
According to Devendra Nevgi, chief executive of ZyFin Advisors, Tuesday's knee-jerk reaction will not be long-lasting as markets had factored in a status-quo.
"What's more important for the markets is to assess the language used by the RBI on the Indian economy, oil prices, monsoon, inflation and the US rate hike. The analysis of language will give further impetus to the markets," Nevgi observed.