The BSE Sensex and Nifty fell nearly 3% on Wednesday to their lowest close so far this year, hit by strong selling on pre-programmed electronic trading platforms as well as continued offloading by foreign investors worried over a retrospective tax proposal.
Sensex nosedived 722.77 points to end at 26,717.37; Nifty tanks 227.80 points to close at 8,097. Both the indexes fell to their lowest level since December 17.
After rallying since early 2014, both share indexes have wiped out their 2015 gains. Pre-programmed electronic trades or algorithmic trades account for a third of the total volume on cash shares and almost half of the volume in the derivatives segment.
All but one stock – Bharti Airtel – that make up the Sensex ended in the red on Wednesday. At a broader level, of the 2,841 stocks that traded on the Mumbai bourse, 2,152 ended in the negative territory.
Dealers said the sell-off was initially sparked by a slump in NSE index futures listed on the Singapore exchange, which are now trading at a discount to domestic NSE index futures.
The heavy selling in shares also hit bond markets, with the 10-year bond yield rising as much as 6 basis points to 7.92%, the highest since December 29, 2014, according to Thomson Reuters data.
The sell-off signals the sudden bout of uncertainty gripping markets since April over the so-called minimum alternative tax (MAT) that is being demanded from some foreign investors.
Bonds were also impacted in line with other global debt markets. The benchmark 10-year bond yield was up 4 basis points on the day at 7.89%.
Uncertainty is expected to continue given lingering concerns over MAT. Overseas investors have offloaded shares worth a net of more than $1.7 billion in the last 13 sessions, excluding the amount raised from Daiichi Sankyo's stake sale in Sun Pharmaceutical Industries.
Junior Finance Minister Jayant Sinha last month said notices had been issued in 68 cases, with a total tax demand of 6.02 billion rupees. But Finance Minister Arun Jaitley has estimated claims could eventually stand at as much as 400 billion rupees.