The Bombay Stock Exchange benchmark Sensex fell to its three-week low today, closing 146 points down to below the 18,000 mark as FIIs sold stocks on fears that the 25 basis points hike by the RBI to tame a strident inflation will hit the growth of an economy, already showing signs of a slowdown.

Weak global cues further dampened the sentiment.

The Sensex dropped by 146.36 points or 0.81 per cent to 17,985.88, a level last seen on May 25, after the Reserve Bank of India hiked the lending rates by 25 basis points for the tenth time since March 2010.

BSE data showed that overseas investors sold a net Rs 373 crore of stocks yesterday, turning net sellers this year for the first time since June 1.

Fall in emerging market stocks dragged the Sensex to a three-month low, amid concerns that increased efforts to cool inflation in India and China will curb the economic growth amid a worsening debt crisis in Europe.

The broad-based National Stock Exchange index Nifty lost 50.75 points, or 0.93 per cent to 5,396.75 level.

On the BSE, Reliance Industries and Infosys, which carry the maximum weight on the 30-share gauge, Sensex, also declined. RIL fell to a two-year low of Rs 888, after it was downgraded by HSBC Holdings.

IT bellwether Infosys fell by Rs 33.35 to Rs 2,800.55 following a weak trend in the US markets. The software exporter gets more than 50 per cent of its revenue from the US and European markets.

Interest-rate sensitive banking stocks also suffered.

Market leaders like HDFC Bank and ICICI Bank dropped by Rs 29.50 to Rs 2,342.90 and Rs 4.55 to Rs 1,028.50, respectively.

Heavy machinery stocks led by Larsen and Toubro fell on concerns that higher borrowing costs will hurt the profit margins.

Larsen lost Rs 34.25 to Rs 1,679.70, Siemens India by Rs 3.50 to Rs 872.30 and ABB Ltd by Rs 9.50 to Rs 841.50.

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