Dalal Street tumbled after the Reserve Bank of India (RBI) withdrew emergency liquidity support measures that were implemented in the aftermath of the global financial crisis. Even as poor results by Tata Steel and weak Asian markets added to the selling pressure, the BSE Sensex plunged 387.10 points or 2.31 per cent to 16,352.40.

What upset the market was the RBI warning of possible asset price bubbles, and the hike in banks’ provisioning requirements for commercial real estate loans and the upward revision in inflation forecast. “The rate sensitive sectors (banking, realty and auto) should see a re-rating, as also their earning estimates going forward. Among auto stocks, the impact would be more pronounced in CVs followed by two wheelers and passenger vehicles,” said an analyst with Religare.

Bank stocks fell as the RBI did not relax mark-to-market rules for bank's debt holdings. The market has been agog with talks of the central bank hiking the ceiling on the portion of government securities that banks can park in held-to-maturity. Another trigger for the sharp slide in banking stocks was the central banks' decision to streamline provisioning requirement on non-performing assets. The RBI asked banks to ensure by September 2010 that the total provisioning coverage against non-performing or bad loans aren’t less than 70 per cent of the outstanding amount.

Realty and metal stocks were heavy losers. Tata Steel fell by 7.26 per cent after poor Q2 results. The BSE Realty index (down 6.24 per cent), the Metal index (down 5.82 per cent) and the BSE Bankex (down 3.82 per cent) witnessed the maximum damage.

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