Indian equities slipped into the red in early hours of trading Tuesday after opening on a strong note following interventions by the markets watchdog and a cut in minimum cash balance for banks against deposits announced by the central bank a day earlier.
The sensitive index (Sensex) of the Bombay Stock Exchange (BSE) opened strong at 12,068.11 points, against the previous close at 11,801.70 points, and soon shot up to 12,181.43 points.
But two hours into trading the barometer index slipped to 11,736.51 points, with a loss of 65.19 points, or 0.55 percent, over the previous close.
Specific indices for consumer durables, down 3.59 percent, and fast moving consumer goods, down 3.06 percent, led the laggards, while those for technology, up 1.22 percent, and oil and gas, up 1.12 percent, bucked the trend.
The upbeat mood following the twin interventions by the Reserve Bank of India (RBI) and the markets watchdog appeared to have been short lived.
The central bank had cut the minimum cash balance for commercial banks against deposits by 50 basis points, while the market watchdog Securities and Exchange Board of India (SEBI) removed some curbs on foreign funds earlier in the day.
The RBI said it was cutting the cash reserve ratio (CRR) for banks by 50 basis points to 8.5 percent in a bid to inject Rs.200 billion (Rs.20,000 crore or $4.44 billion) into the financial system.
Earlier in the day, soon after market closing, SEBI removed some curbs on foreign funds like the 40 percent cap on participatory notes and overseas derivative instruments.
The regulator also decided to review the entire working of foreign institutional investors (FIIs) in the country and said a policy paper will soon be floated to invite comments and suggestions from all stakeholders.
Participatory notes or P-Notes are financial instruments used by foreign funds that are not registered with the markets regulator to invest in Indian equities. But their use was curbed in October last year to make trading more transparent.
The move came after foreign funds sold over $9 billion worth of equity in Indian stock markets this year, resulting in a drop of over 30 percent in the 30-share Sensex during a 52-week period.