Reacting sharply to an interest rate hike by the Reserve Bank of India (RBI), the benchmarks fell more than 2% on Wednesday, dampening sentiments of the market on the Day 1 of LIC IPO.  

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Benchmarks Nifty 50 and the Sensex had declined more than 2.5% minutes before market closing hours after RBI on Wednesday, in an unscheduled MPC meeting, hiked the benchmark lending rate by 40 basis points (bps) to 4.40 per cent to contain inflation.  

The MPC's decision, in an unscheduled meeting, to raise the repo rate by 40bp and CRR by 50 bp is a surprise since it came on the LIC IPO opening date, said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services. 

"MPC's proactive move is justified from the perspective of inflation management, but the timing leaves a lot to be desired. The above 1000 point crash in Sensex has soured the sentiments on the opening day of India's largest IPO. The 10-year bond yield has spiked to above 7.39% indicating an imminent rise in the cost of funds," added the expert. 

Meanwhile, the broader Nifty50 slipped below 16,700, while the Sensex dropped over 1100 points on Wednesday, tracking RBI development and weakness in the global market.  

The two indices closed at 16,677.60 and 55,669.03. 

In the broader market, Nifty midcap and small cap indices too fell by around 2% as India Volatility Index (VIX) approached 22-mark on Wednesday's closing.  

Sector-wise, Nifty Media, Realty and Consumer Durables declined the most as the indices dipped by more than 3%. Besides, all sectors settled deep in the red with auto, banking and financial services stocks correcting by more than 2%.  

Among stocks, ONGC, Britannia, Power Grid and NTPC gained in an otherwise weak market. Apollo Hospitals, Hindalco, Adani Ports, Titan, Bajaj twins, IndusInd Bank, HDFC Bank, Maruti and Reliance Industries were among the laggards.