The benchmark S&P BSE Sensex tanked a whopping 402 points to close at a two-week low of 19,748.19, breaking four weeks of uptrend, following disappointing Q1 results amid steps taken by the central bank to stem the rupee fall.
The Bombay Stock Exchange 30-share barometer, which logged its 30-month closing high of 20,302.13 on Tuesday came off from the highs and dipped to settle at 19,748.19, showing a fall of 401.66 points or 1.99%.
In last four-weeks, it had spurted by 1,375.61 points or 7.33%.
The wide-based CNX Nifty of the NSE also dipped by 143.00 points or 2.37% to end at 2-week low of 5,886.20.
Lower-than-expected first quarter results announced by construction and engineering giant, L&T weighed on the market.
While, it recovered on Tuesday as the markets gave a thumbs-up to the RBI's fresh curbs on gold imports and a drop in US home sales suggested the Fed would continue its stimulus programme.
The Reserve Bank of India's move on late Monday to curb gold imports to slash the current account deficit was one of the reasons that helped boost sentiment in the markets, brokers said.
A shift in funds to domestic stocks from the bullion and forex markets also supported the market, they added.
However, the RBI took additional steps to tighten liquidity in a bid to curb exchange rate volatility, which dampened the market sentiment and a result banking stocks suffered heavy losses.
The RBI reduced the liquidity adjustment facility for each bank from 1% of net demand and time liabilities to 0.5%, limiting access to borrowed funds from the central bank. It also asked banks to maintain a higher average cash reserve ratio of 99% of the requirement on a daily basis as against 70% earlier.
"Markets sold off sharply after Tuesday on the back of fresh RBI measures," said Sanjeev Zarbade, vice president - Private Client Group Research at Kotak Securities.
"Due to these measures, banks having higher bulk borrowing would get impacted more as bond yields, CP and CD rates are likely to rise sharply. Even other sector stocks that are sensitive to interest rates witnessed selling pressure."
Besides cautious trades ahead of monthly expiry of derivatives on Thursday, brokers said a mixed trend in the global markets also affected local stocks.
Q1 results by FMCG giants ITC and HUL also later weighed on the market as sales numbers of ITC missed market estimates while HUL posted a 23% drop in profit.
Brokers said investors refrained from creating major positions before the RBI's credit policy review scheduled on July 30. They also said the RBI's liquidity-tightening measures might hurt growth prospects in the short term.
After weak Q1 results from the L&T, other capital goods counters also suffered heavy losses as the S&P BSE-CG index was the top loser from the sectoral indices falling a massive 10.16%.
21 scrips out of the 30-share Sensex pack ended lower while 9 othe Rs. finished higher.
Major lose Rs. from the Sensex pack were LaRs.en (13.24%), Jindal Steel (9.76%), Tata Steel (9.19%), Hindalco Ind (8.84%), BHEL (8.60%), Sterlite Ind (7.54%), Maruti Suzuki (5.19%), HDFC Bank (5.30%), Gail India (4.10%), ONGC (3.90%), Tata Power (3.73%) and RIL (3.60%).
However, Hero Moto rose by 5.24 followed by Sun Pharma at 3.47%, Bajaj Auto by 3.06%, Infosys at 2.45%, Bharti Airtel at 2.41%, TCS at 1.75% and M&M 1.72 at%.
The total turnover at BSE and NSE fell to Rs. 9,390.41 crore and Rs. 55,989.13 crore, respectively from the last weekend's level of Rs. 9,411.92 crore and Rs. 57,586.28 crore.
Among the other sectoral indices S&P BSE-Bankex dropped by 4.73% followed by S&P BSE-PSU at 4.15%, S&P BSE-Power at 3.58%, S&P BSE-Metal at 3.28%, S&P BSE-Oil&Gas 3.24 at%, S&P BSE-Realty 2.38% and S&P BSE-HC 1.72%.
However, S&P BSE-IT rose by 2.03% and S&P BSE-Teck at 1.76%.
Meanwhile, foreign institutional investo Rs. (FIIs) were the net selleRs..
Forex: The rupee continued its upward march for the third straight week, rising by 31 paise to close at one-month high of 59.04 against the Greenback during the week under review on measures taken by the central bank to stem the rupee fall amid sustained dollar selling by exporte Rs. and some banks.
However, negative facto Rs. like weakness in local stocks and capital outflows restricted the rupee rise.
At the Interbank Foreign Exchange (Forex) market, the domestic unit resumed better at 59.30 a dollar from last weekend's close of 59.35, but dropped to a low of 59.87.
Later, it bounced back on steps taken by the apex bank to a high of 58.69 before settling the week at 59.04, showing a rise of 31 paise or 0.52%. In three-week of gaining string, it has flared up by 118 paise or 1.96%.
Seeking to tighten gold imports in the face of a widening CAD, the Reserve Bank on Monday evening set stringent conditions for importeRs., linking inward shipments to future exports. The restriction came when gold imports, in addition to oil, are putting pressure on the current account deficit, which soared to record high of 4.8% in 2012-13.
To contain the exchange rate volatility, the RBI on Tuesday announced more measures to squeeze liquidity from the banking system. It limited access to borrowed funds by reducing the liquidity adjustment facility for each bank from to 0.5% of net demand and time liabilities from 1%.
The RBI also asked banks to maintain a higher average cash reserve ratio of 99% of the requirement daily as against 70% earlier.
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) Pvt Ltd said, "Rupee continued to trade strong this week also as RBI again took some steps to make currency scarce and squeeze the liquidity to support the Rupee.
"This week on Wednesday Indian Rupee posted its biggest single-day gain in nearly a month. On the weekly basis it closed strong for the third consecutive week. During this month till now Rupee has already appreciated by more than 2.50%."
"Local equity markets reacted negatively on the actions taken by the RBI and lost more than 2% this week which capped the Rupee gain. The trading range for the Spot USD/INR pair is expected to be within 58.70 to 59.40. The dollar index which measures the greenback against a basket of six other currencies continued to trade weak for the third consecutive week. This month Dollar Index has weakened by almost 3.50% till now," he added.
The premium for the forward dollar firmed up further on sustained paying pressure from banks and corporates.
The benchmark six-month forward dollar premium payable in December rose further to end at 224-229 paise from last weekend's level of 203-206 paise and far-forward contracts maturing in June also finished sharply higher at 440-445 paise from 408-411 paise.
The RBI fixed the reference rate for the US dollar at 58.9133 and for the euro at 78.2180 from previous weekend's level of 59.7950 and 78.5222, respectively.
The Rupee remained weak against the pound sterling to 90.98 from preceding weekend's close of 90.62 and also dropped further against the euro to end at 78.36 from last weekend's close of 77.93.
However, it fell back against the Japanese yen to 59.88 per 100 yen from previous close of 59.20.
Oils and oilseeds: Edible and non edible oils ruled bearish in a sluggish trade at the oils and oilseeds market during the week under review.
Groundnut oil prices slumped on heavy stockist selling amid weak demand from stockists and retaile Rs. on the back of adequate supplies.
Refined palmolein mostly traded steady, though drifted during the fag-end trade owing to lack of retail buying coupled with lower Malaysian cues.
Castor seeds bold and castor oil commercial declined on poor demand from shippe Rs. and soap industries.
Castor seeds futures tumbled on heavy stockist sell-off following poor export enquiries.
Linseed oil largely traded stable, finally eased on reduced offtake from paint and allied industries.
In the edible oils segment, groundnut oil opened lower at Rs. 980 and dropped further to close at Rs. 930 from last weekend's level of Rs. 985 showing a fall of Rs. 55 per 10 kg.
Refined palmolein resumed steady at Rs. 525, but later drifted to finish at Rs. 516 from preceding weekend's level of Rs. 525 showing a loss of Rs. 9 per 10 kg.
In the non-edible section, castoRs.eeds bold opened stable at Rs. 3,500, later declined to end at Rs. 3,425 from the last weekend's level of Rs. 3,500 per 100 kg, showing a fall of Rs. 75.
Castor oil commercial also resumed steady at Rs. 730, but later eased to close at Rs. 715 from its last weekend's level of Rs. 730 showing a loss of Rs. 15 per 10 kg.
Linseed oil also opened stable at Rs. 730, later moved down to end at Rs. 725 from its previous weekend's level of Rs. 730 showing a modest loss of Rs. 5 per 10 kg.
Moving to the futures section, Castor seeds for September delivery resumed lower at Rs. 3,652 and tanked further to Rs. 3,420 before concluding at Rs. 3,426 from last Saturday's closing level of Rs. 3,712, showing a sharp fall of Rs. 286 per tonne.