According to market observers, investors were also rattled by a downward revision in the country's GDP growth rate to 7 per cent from 7.2 per cent in 2019-20.
Besides, a new default in the NBFC (Non-Banking Financial Company) space also hurt investors. According to reports, Dewan Housing Finance Corporation Ltd (DHFL) had missed interest payments due on Tuesday, following which rating agencies ICRA and CARE downgraded DHFL's commerical paper worth Rs 850 crore "default".
The BSE Sensex closed 553.82 points or 1.38 per cent lower at 39,529.72 points, while the NSE Nifty50 was down 177.90 points or 1.48 per cent at 11,843.75 points.
Almost all sectoral indices, except consumer durables, IT and FMCG, closed in the red. Particularly impacted were the interest rate sensitive stocks such as banking, automobile and capital goods.
Additionally, stocks with exposure to DHFL came under selling pressure even as its NCDs fell sharply after rating agencies downgraded its credit rating to D
On Thursday, RBI lowered its key lending rate for commercial banks by 25 basis points (bps) to 5.75 per cent.
Besides, the RBI changed the monetary policy stance from neutral to accommodative. The significance of such a move can be gauged by the fact that the RBI has reduced its growth forecast to 7 per cent in 2019-20 from 7.2 per cent.
The decision to reduce the repo rate was taken by the RBI's Monetary Policy Committee (MPC) at its second monetary policy review of the ongoing fiscal.
( With inputs from IANS )