Mumbai: Indian investors woke up to another surprise on Thursday as the US Federal Reserve went for a rate cut on the dotted lines but gave a hawkish note on future policy rates amid a marked slowdown in global economic activity.
Both the key Indian benchmark indices declined sharply. While the broader Nifty which had crossed 12,000 mark post-polls fell 138 points to 10,980 points, the Sensex closed 462.80 points, lower at 37,018.32.
The US central bank, while slashing the policy rates by 25 basis points, for the first time since 2008, said it was "not the beginning of a long series of rate cuts".
Indian stocks are already having a bad spell over exodus of foreign funds caused by a tax-surcharge in the Budget and a dismal ongoing corporate earning season.
"There has been clear overdose of challenging news flow for the past one month," said Jagannadham Thunuguntla of Centrum Broking.
"The Fed Chairman's statement that interest rate cut isn't the start of rate-cut cycle has dampened the excitement of investors, as Fed denied playing to the capital-market-gallery," he added.
Global markets felt the pinch of the Fed's hawkish remark. US indices S&P 500 and Nasdaq ended over 1 per cent lower. Most Asian markets also ended lower over additional concern of slowdown in China and South Korea.
European shares, however, recovered from early losses on Thursday as a solid batch of bank earnings outweighed the impact of falling expectations of US interest rate cuts, said Deepak Jasani of HDFC Securities.