Hit by fears over the impact of the US Fed announcing a cut in its stimulus, the benchmark Sensex dived over 151 points at the close today on selling in banking, capital goods and power shares.
The Federal Open Market Committee yesterday announced a plan to cut monthly bond purchases to $75 billion from next month compared to $85 billion now, a decision that is expected to cause some volatility in emerging market assets.
After opening with a 100-point rise on firm Asian cues, the Sensex hit day's high of 21,017.45 but the gains proved to be short-lived as nervous investors resorted to selling. It fell by 151.24 points, or 0.73%, to 20,708.62.
In the 30-share index index, 19 stocks led by Reliance Industries, ICICI Bank, State Bank of India, ITC, HDFC Bank, Hero MotoCorp and Larsen & Toubro dropped.
"Emerging market economies (EMEs) have been caught off guard on the timing of the Fed decision, as consensus seemed set on March 2014. Chances of a capital flight to the US and a strong $ are real, and EMEs could suffer as higher than expected equity and debt outflows can materialise than already priced in," said Ashish Kumar, Economist, Elara Securities in a report.
Finance minister P Chidambaram tried to calm the sentiments by assuring that the government could take more steps to deal with emerging situation.
"I think the consequence should not be large. Even if there are some consequences then I think we are better prepared," he said in New Delhi.
In the currency markets, the rupee was trading lower at 62.18 versus dollar. The dollar climbed against most of its 16 major counterparts after the US Fed's taper decision.
Yesterday, the Sensex had snapped a six-day falling streak to rise by 248 points after the RBI's surprise decision to maintain a status quo on policy rates.
The National Stock Exchange index Nifty declined by 50.50 points, or 0.81%, to 6,166.65. after touching the day's high of 6,263.75. Also, SX40 index, the flagship index of MCX-SX fell 63.06 points to end at 12,336.53.
Sectorally, the BSE Banking sector index suffered the most falling 2.43%, followed by capital goods index (1.91%), Oil and Gas index (1.23%) and Power index (1.02%)