Tracking weak Asian markets, the 30-share barometer of the Bombay Stock Exchange opened on a weak note and a lower opening on European bourses further dragged it down. The Sensex closed the day at 18,179.64, down by 131.95 points, or 0.72 per cent.
In the past two sessions, the Sensex has lost nearly 230 points.
The wide-based 50-share Nifty index of the National Stock Exchange slipped by 0.78 per cent and finished at 5.462.35. The market was also sluggish ahead of the expiry of derivative contracts, analysts said.
Stock markets across the world tanked today as investors stayed away from riskier assets, with the fragile pace of the economic recovery weighing on the investment sentiment.
"Prudent profit-booking ahead of settlement in the F&O segment, coupled with losses in overseas markets dragged the indices," Networth Stock Broking Head of Institutional Business Prakash Diwan said, adding that, "The current phase of consolidation may continue in coming sessions."
China's benchmark Shanghai Index plunged over 2 per cent and Japan's Nikkei index by 1.66 per cent. European bourses, too, were in negative terrain, with Britain's FTSE down 0.39 per cent.
Analysts said the already dampened market sentiment was further hurt after a key US report showed that sales of existing homes have dived by 27.2 per cent to a 15-year low.
Interest-rate sensitive stocks, such as banking, realty and auto, were among the worst hit on fears that high inflation may trigger another interest rate hike by the RBI.
The RBI yesterday expressed concerns over high inflation, which analysts said may trigger monetary tightening by India's central bank.
DLF plunged by 3.35 per cent, the most in the Sensex pack. ICICI Bank lost 1.67 per cent, SBI 0.82 per cent, HDFC Bank 0.63 per cent and HDFC 0.90 per cent.
Among the frontline auto stocks, Hero Honda sank 2.32 per cent, Maruti 1.14 per cent, Tata Motors 1.82 per cent and M&M 0.31 per cent.
The Reserve Bank, in its annual report for 2009-10, said the country's economic recovery is robust, though it expressed concern over the prevailing high inflation caused by supply- side bottlenecks, which it warned could hamper sustainable growth. Selling pressure was also witnessed in some metals stocks as the gloomy global economic outlook weighed on the market sentiment.
Tata Steel sank by 3.22 per cent, followed by Hindalco, which shed 2.97 per cent.
Reliance Industries, which carries the maximum weight in the Sensex, declined 0.42 per cent to close at Rs 968.10."There are no positive triggers in markets and investors are waiting for clarity," Diwan said.
Except for IT, all 13 sectoral indices on the BSE ended in the red, falling in the range of 1 per cent to 3 per cent. The BSE Realty Index was the worst performer. Infosys rose 0.23 per cent and TCS 0.24 per cent.
Drug major Cipla, which today announced a special interim dividend of 80 paise per equity share (face value of Rs 2 per share), ended 2.63 per cent lower at Rs 1,845.10. The company also said it will acquire Mumbai-based Meditab Specialities for a consideration of Rs 133.35 crore.
In the BSE-30 pack, 23 stocks ended with losses, while seven scrips managed to close in the green.Sterlite Industries, the principal subsidiary of Anil Agarwal-led Vedanta Resources Plc, bounced back and ended with a gain of 1.12 per cent as fresh buying emerged at lower levels. Sterlite, which had lost 4 per cent yesterday, was the top gainer in the Sensex pack today.
"In our view, the mining denial is a big dampener for VAL's expansion projects. However, we feel the company will consider other alternatives, as captive bauxite is key to VAL's projects in the long term," domestic brokerage house Angel Broking said.
"Moreover, the development will not have a material impact on earnings estimates by us, as the consolidated financial statements for Sterlite include only 29 per cent of the profit from VAL," it added.
The Ministry of Environment and Forests has rejected Vedanta Aluminium's (VAL) application for a Stage-II forest licence for its Niyamgiri mining project (Orissa). VAL is a subsidiary of Vedanta Resources (71 per cent) and Sterlite (29 per cent).