The RBI's hint of a tighter interest rate stance in the future shocked Indian markets today. India was in fact the biggest loser in Asia, closely followed by markets in China and Japan. Realty, metal and banking stocks were the worst hit today.

The BSE-Sensex and the NSE-Nifty closed with losses of around 390 points (2.3%) and 130 points (2.6) respectively. Stocks from the small cap space weren't spared either, as the BSE-Midcap and BSE-Smallcap index dropped by 3.7% and 4.4% respectively. The rupee also depreciated, and was trading at 46.94 to the US dollar at the time of writing.

Real estate stocks got a severe hammering today, as the BSE-Realty index declined by over 6%. Biggest losers here included the likes of DLF, Unitech, and HDIL. These stocks were hit by the RBI torpedo, as the central bank outlined norms to make loans to commercial property developers difficult. The RBI rightly indicated in its mid-term monetary policy review note - "In view of large increase in credit to the commercial real estate sector over the last one year and the extent of restructured advances in this sector, it would be prudent to build cushion against likely non-performing assets."

The RBI increased the provisioning requirement for advances to the commercial real estate sector from 0.4% to 1%. This is surely going to hit realty companies that are looking to borrow from the banks to fund their commercial real estate development plans. This will not only make it difficult for realty companies to get sufficient loans, it will also likely make such loans more expensive. We see this is a positive development given that the RBI has tried to nip the sort of bubble that was building in the realty segment, especially given the large fund raising and dilution by some leading names in anticipation of better demand. These guys must be thoroughly disappointed today!

Metal stocks also took a major beating today. Key losers here included Sesa Goa, Tata Steel, and Hindalco. Weakness in Tata Steel was a direct result of a weak performance reported by the company for the quarter ended September 2009. As per the standalone numbers (that exclude Corus) released by the company, sales declined by 16% YoY during 2QFY10. This came on the back of pressure on steel prices, as the company's volumes reported a decent 19% YoY growth. Further, its net profits almost halved from 2QFY09 levels.

Stocks from the banking sector also lost big time in today's trade. The BSE-Bankex declined by almost 4%, and the biggest losers here included ICICI Bank, SBI, and IDBI Bank. RBI's lackluster forecast for credit growth during the current fiscal that ends in March 2010 has seemingly hurt these stocks. The central bank's decision to raise SLR requirement to 25%, from 24% currently, has also had its impact. This is given that a higher SLR would somewhat restrict bank loans, and also acts as an indication that the RBI will soon start raising interest rates.

As a matter of fact, banking stocks, like real estate stocks, have been among the biggest gainers over the past few months. This has been owing to an improved macro-economic environment and subsequently, revived demand for loans from corporate and individuals. Now with the RBI signaling a tighter interest rates stance for the future, these stocks have felt the pinch.