The benchmark S&P BSE Sensex on Tuesday fell 651 points as the rupee once again breached the 68-mark to the dollar after a spate of negative news, including escalating tension in Syria.
Investors were spooked as Russian media said two missile launches were detected from the central Mediterranean Sea. The report came amid concern about military action in Syria.
Brokers said across-the-board selling was triggered by a report that Standard & Poor's had said chances of a credit rating downgrade for India were higher than for Indonesia.
After JP Morgan, HSBC Global Research and Nomura, Goldman Sachs today cut India's growth forecast for this fiscal to 4 % from 6 % earlier and said it expects the rupee to touch 72 against the dollar in the next six months.
The Sensex, which started above the 19,000 mark, fell to close at 18,234.66, a decline of 651.47 points or 3.45 %. The drop was the most since August 16, when it fell 769 points or 3.97 %. It was the first loss after four sessions of gains, during which it added 918.05 points.
The series of negative news followed data on Friday that showed economic growth slowed to 4.4 % in April-June.
Yesterday, the government said growth in eight infrastructure industries was 3.1 % in July, against 4.5 % a year earlier. An indicator of manufacturing sector activity in India contracted in August.
"The economy's fundamentals in the near term remain on shaky ground," said Vaibhav Agrawal, VP of research at Angel Broking. "Increase in oil prices due to the Syria situation is expected to add to the current account burden, keeping the rupee under pressure. As a result, hopes of quick reversal of interest rate hikes by the RBI are waning."
The Nifty tumbled 209.30 points, or 3.77 %, to 5,341.45. The MCX-SX's SX-40 was down 3 % at 10842.41.
The rupee, which closed at 66 to the dollar on Monday, dipped to below the 68-mark in afternoon deals.
Banks, consumer durables and realty shares led sectoral indices lower. Reliance Industries lost 6.07 % and ITC fell 5.37 %, together contributing more than 220 points to the decline in the Sensex.
Asian stocks ended mostly higher on evidence of a pick-up in global manufacturing. Key indices in China, Hong Kong, South Korea, Japan and Taiwan firmed up while Singapore's Straits Times eased. European markets were lower ahead of monetary policy decisions in Japan, the euro zone and UK.
In the local market, 28 Sensex shares fell, led by Hero MotoCorp (6.58 %). Other losers were ICICI Bank (5.21 %), Bharti Airtel (5.17 %), HDFC (4.8 %) and Larsen and Toubro (4.52 %).
The sectoral indices all fell, led by S&P BSE-Bankex dropping 5.06 %, S&P BSE-CD 4.61 %, S&P BSE-Realty 4.39 %, S&P BSE-FMCG 3.89 % and S&P BSE-Oil&Gas 3.63 %.
The market breadth turned negative as 1,478 stocks ended lower, 805 finished higher and 133 ruled steady. Turnover rose to Rs 2,183.96 crore from Rs 1,721.63 crore on Monday.
Foreign institutional investors bought a net Rs 475.92 crore of shares yesterday, as per provisional figures issued by the stock exchanges.