The BSE Sensex and Nifty fell for a third consecutive session on Thursday, as lenders and other coal-related firms remained under pressure a day after the Supreme Court scrapped all but four of 218 coal blocks allocated by the government since 1993.
The BSE Sensex closed 1.03% or 276.33 points lower at 26,468.36 points, while the Nifty ended down 1.13%, or 90.55 points, at 7,911.85.
The Bank Nifty closed 2.8% lower as the court order raised concerns that loans to the holders of the permits could turn sour and pressure lenders already battling a rise in bad loans.
Power, steel and cement companies that won the blocks continued their slump on worries about the impact the de-allocation would have on their profits.
Overseas investors, who were the backbone of the rally in Indian markets so far this year, sold shares for the second straight day. On Wednesday, the selloff was worth $130 million on Wednesday, exchange data showed.
"Concerns over the court verdict are not yet over. Even foreign investors have started cutting exposure, which is a real concern," said Suresh Parmar, head of institutional equities at KJMC Capital Markets.
"However, the correction will give a really good chance to enter quality companies at better valuations," he added.
India was the worst performing market in Asia on Thursday. Most of the Asian markets were higher, while the MSCI-Asia Pacific index excluding Japan fell 0.6%.
Caution also prevailed due to the expiry of monthly derivatives contracts.
Banking stocks led the decliners with heavyweights such as State Bank of India slumping 4.4 percent and ICICI Bank ending 3.4% lower as investors interpreted the court ruling as a negative for the sector.
Coal stocks continued their slump. Jindal Steel and Power fell 7.7% while Hindalco Industries Ltd ended 4.5% lower due to concerns about the future of the coal blocks.
Among the gainers, software exporters rallied after global rival Accenture said it expected better profitability for its fiscal year.
Tata Consultancy Services ended 2.5% higher, while Infosys gained 1.3%.
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