Domestic and global negative factors weighed heavily on the bourses as both the benchmark indices, S&P BSE Sensex and the CNX Nifty, tanked sharply and ended at four-month lows following across-the-board sell-off, extending their losses for the second straight week.
The 30-share Sensex plunged by about 692 points, while 50-scrip Nifty nosedived 221 points to register their biggest weekly fall in the current calender year.
The Sensex posted its biggest weekly fall in absolute term since second week of December 2011 when it had plunged by 722.11 points, or 4.45%, and the Nifty since third week of November 2011 when it had slumped by 263 points or 5.09%.
Hammering was so strong that 12 out of 13 sectoral indices closed in the red, losing between 13.04% and 1.32%. Realty, PSU, power, metal, capital goods, refinery, auto and banking segments bore the brunt of investor fury.
Markets closed in negative terrain on all the five trading days of the week.
Trading commenced the week on a bearish note with a sharp downside gap of over 140 points on fears of a fresh eurozone debt crisis after Cyprus said it was planning to tax bank deposits as part of a 10 billion euro ($12.9 billion) sovereign bailout deal.
The news from the tiny Mediterranean country, a member of the eurozone, rattled the global markets and its tremors were felt in faraway India too.
On March 16, Cyprus got euro 10 billion package from lenders but planned to impose a one-time levy on money held in the island's bank accounts as part of the sovereign bailout.
Business-friendly Cyprus has treaties on double taxation with many nations, making it attractive for investors.
The sentiment worsen further on the second day, after DMK withdrew support to the Congress-led UPA Government over the issue of alleged human rights violations of Tamils in Sri Lanka. The political development overshadowed the positive atmosphere created by RBI's rate cut on March 19.
Five Union ministers of the DMK, which was UPA's biggest coalition partner after the Congress, handed over their resignation to the Prime Minister over the Lanka issue.
The pullout by the Tamil Nadu-based party raised concerns about the stability of the Manmohan Singh government and the fate of key reform bills related to pension and insurance which are pending in Parliament.
Finance minister P Chidambaram quickly stepped in to calm investor fears and asserted that the UPA government enjoyed majority and it was "absolutely stable". However, Chidambaram's assertion failed to convince a nervous market, which continued to reel under heavy selling pressure.
Experts said markets reacted cautiously to RBI's rate cut as the sentiment was adversely hit by Reserve Bank's statement that scope for future rate cuts was limited.
The central bank, in its mid-quarter monetary policy meeting on March 19, cut short-term lending rate, or repo, by 0.25% to boost economic growth.
The market turned choppy on the last day of the week, moving in and out of positive terrain, as the European Central Bank on Thursday issued a deadline to Cypriot Parliament for meeting the terms of the proposed bailout.
The Bombay Stock Exchange gauge, Sensex, after resuming lower, continued its downward march and closed at 18,735.60, a level not seen since November 26, 2012 when it ended at 18,537.01, posting a hefty fall of 691.96 points, or 3.56%. Last week, the index had tumbled 255.67 points, or 1.30%.
Similarly, the NSE 50-issue CNX Nifty moved in a range of 5,863.60 and 5,651.35 before concluding the week at 5,651.35, a fall of 221.25 points, or 3.56%. The NSE benchmark had ended at 5,635.90 on November 26, 2012.
Meanwhile, Foreign Institutional Investors (FIIs) continued their buying spree and picked up shares worth Rs. 919.20 crore in the week, including provisional figure of November 22.
"Going forward, doubts will be raised in the minds of investors as to how government will go ahead with any reform process, whether disinvestment process will go through smoothly and reaction of FIIs," said Asit C Mehta Investment Interrmediaries AVP - Institutional Research K Subramanyam.
"Given the domestic political uncertainty, Cyprus crisis, next week being a truncated one on account of Holi and Good Friday and expiry of derivatives contract on March 28, market may enter into a consolidation phase," said Amar Ambani, Head of Research, IIFL.
Overall 28 out of 30 Sensex-based scrips closed with sharp to moderate losses while only FMCG majors ITC and HUL finished with gains.
BHEL, Tata Steel, SBI, ONGC, Maruti Suzuki, L&T, Tata Motors, Coal India, Sterlite Ind, Hindalco, Tata Power, M&M, Bharti Airtel, HDFC Bank, NTper cent, RIL, ICICI Bank, Dr Reddy's Lab, HDFC, TCS, Gail India, Hero MotoCorp, Jindal Steel and Wipro ended down between 9.11% and 1.15%.
Among the sectoral indices, the BSE-Realty tanked by 13.04% followed by S&P BSE-PSU 7.58%, S&P BSE-Power 7.32%, S&P BSE-Metal 6.87%, S&P BSE-CG 6.79%, S&P BSE-Oil&gas 5.24%, S&P BSE Bankex 5.15%, S&P BSE-Auto 4.80%, S&P BSE-Teck 2.66% and S&P BSE-CD by 2.22%.
Selling was seen in second line counters by wary retail investors as S&P BSE-Smallcap and the S&P BSE-Midcap dipped by 6.58% and 4.95%, underperforming the sensex.
The total turnover at BSE and NSE was at Rs. 10,973 crore and Rs. 56,627.38 crore during the week as against the last weend's turnover of Rs. 10,196.26 crore and Rs. 56,779.08 crore respectively.
Forex: Breaking its two-week of gaining streak, the rupee reacted downwards from nearly 3-week intra-day high of 53.90 and closed 32 paise down at 54.33 against the Greenback during the week under review following distinctly weak local equities amid fresh dollar demand from importers and some banks.
Dovish statement by the RBI over the future cut in the key interest rates following higher inflation and political mess after the DMK withdrew the support of the Congress-led UPA government at the Centre over the issue of alleged human rights violations of Tamils in Sri Lanka also disappointed the market, a forex dealer said.
Continued capital inflows and weak $overseas after the mid-week failed to stem the fall in the rupee, he added.
At the Interbank Foreign Exchange (Forex) market, the domestic unit resumed the week lower at 54.28 a dollar from preceding weekend's close of 54.01, but recovered later on Tuesday in early morning to a high of 53.90 on hopes of key rates cut by the RBI, level not seen since February 28, 2013 when it had logged an intra-day high of 53.60.
However, despite the short-term lending and borrowing (repo and reverse repo) rates cut by 0.25% by the apex bank, the rupee fell back on dovish statement by the RBI that there is limited scope for the rate cut in immediate near future due to rising inflation and higher current account deficit (CAD).
The rupee then touched a low of 54.56 before recovering some ground to settle the week at 54.33, displaying a fall of 32 paise, or 0.59%. In last two week, it had appreciated by 88 paise, or 1.60%.
The BSE benchmark Sensex closed the week down by almost a massive 692 points, or 3.56%, registering its biggest fall in the current calender year and also since second week of December 2011.
FIIs, however, injected $171.97 million in equities in the first four days of the week, as per Sebi data.
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said: "This week the rupee traded three-week high on Tuesday before a disappointing central bank policy statement.
"On Tuesday, the key ally DMK withdrew support from the ruling coalition government was reflected in the weak local equities, which fell for a fifth session to their lowest close in nearly four months, which also weighed on the rupee. It traded strong at mid-week when the news was out largely helped by inflows related to a share sale and debt limit auction to foreigners."
"But looking at the global scenario the gains were not sustained. The short term Rupee looks weak and we could see 55 levels as domestic concerns are coming at a time when investors are also growing concerned about foreign flows after Cyprus issue.
"In addition to uncertainty about Cyprus, the euro was pressured by evidence that the euro zone's economic downturn worsened this month. French and German purchasing-managers' index, or PMI readings, dragged the region's composite PMI further into contraction territory," he added.
"The continued political gridlock and sluggish equities mainly put pressure on the rupee. Globally, the market still awaits the decision over Cyprus bailout. Any positive news could improve the sentiment for a while," said Abhishek Goenka, Founder and CEO, India Forex Advisors.
The rupee premium for the forward dollar ended mixed on alternate bouts of buying and selling.
The benchmark six-month forward dollar premium payable in August finished lower at 173-175 paise from last weekend's level of 175-1/2-177-1/2 paise, while far-forward contracts maturing in February ended up at 338-1/2-340-1/2 paise as against 336-338 paise.
The RBI fixed the reference rate for the US dollar at 54.3350 and for euro at 70.1005 as against the last weekend's level of 54.1605 and 70.5023.
The rupee dropped further against the pound sterling to 82.58 from preceding weekend's level of 81.81 and fell back sharply against the Japanese yen to settle at 57.36 per 100 yen from last weekend's level of 56.22.
However, it remained firm against the euro to end at 70.41 from previous weekend's close of 70.51.