Benchmarks ended in the red for the seventh session on the trot today as the RBI left the policy rate unchanged but lowered growth projection for the fiscal.
In see-saw trade, the BSE Sensex fell over 113 points to finish at 34,082.71, while the broader NSE Nifty shed 21.55 points to 10,476.70.
The central bank kept the interest rate unchanged at 6 per cent as widely expected and maintained its 'neutral' stance. However, it lowered economic growth projection to 6.6 per cent for 2017-18, from 6.7 per cent, while flagging risks of hardening inflation and wider fiscal deficit.
On the global front, traders heaved a sigh of relief as the Dow Jones finished solidly higher after wild price swings.
The 30-share Sensex, which had bounced over 470 points in the opening trade in sync with positive global cues, slipped into the negative zone as participants booked profits at higher levels and hit a low of 34,008.42. It finally finished at 34,082.71 points, down 113.23 points, or 0.33 per cent.
The barometer has now lost over 2,200 points in seven straight sessions.
The wider NSE Nifty too ended 21.55 points, or 0.21 per cent down at 10,476.70. Intra-day, it shuttled between 10,614 and 10,446.40.
"As expected, RBI continued to stay on the neutral stance awaiting more upcoming domestic and global macro data, and seeing some sanity in the bond market. But prevailing inflationary pressure and fiscal slippage may lead to a hawkish view in the near future.
"Market reacted quite negatively while Bank Nifty underperformed owing to deferment in credit cycle due to subdued capacity utilisation in the economy and hardening bond yield," said Vinod Nair, Head of Research, Geojit Financial Services.
A rally in select rate-sensitive realty and auto counters helped both the key indices recover from their day's lows.
Meanwhile, foreign portfolio investors (FPIs) sold shares worth Rs 2,326.10 crore yesterday, while domestic institutional investors (DIIs) bought equities to the tune of Rs 1,699.74 crore, as per provisional data released by the stock exchanges.
In sectoral terms, the banking index dipped 0.43 per cent as shares of PNB, Yes Bank, HDFC Bank, Axis Bank, IndusInd Bank and Bank of Baroda shed up to 2.18 per cent. However, ICICI Bank, SBI and Federal Bank edged higher.
Other sectoral indices such as telecom, teck, IT and capital goods also declined, falling up to 1.12 per cent.
In contrast, the broader markets were back in better shape, with the small-cap index rising 1.95 per cent and the mid-cap index inching up by 0.43 per cent.
Oil & gas, realty, PSU, infrastructure, healthcare, consumer durables, power, FMCG and metal turned positive.
Major losers were L&T, TCS, Bharti Airtel, Wipro, Hindustan Unilever, M&M, Maruti Suzuki, Tata Steel, Sun Pharma, NTPC and HDFC Ltd.
In the Asian region, Japan's Nikkei ended 0.16 per cent higher, while Hong Kong's Hang Seng shed 0.89 per cent. China's Shanghai Index too fell 1.82 per cent.
European markets were trading in the positive terrain in their early deals after the recent global markets turmoil.
Frankfurt's DAX 30 was up 0.66 per cent while Paris CAC 40 gained 0.68 per cent in their early deals. London's FTSE too advanced 0.55 per cent.
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