Mumbai: Volatility prevailed a day ahead of the Reserve Bank of India's (RBI) fourth bi-monthly monetary policy review, which led a barometer index of Indian equities to shed 247 points on Monday.
The markets were not just dragged down by the uncertainty over the RBI's rate cut decision, but also from fears of a US rate hike, which is expected to be implemented by December.
The Indian apex bank will conduct its fourth bi-monthly monetary policy review on September 29.
The barometer 30-scrip sensitive index (S&P Sensex) of the Bombay Stock Exchange (BSE) closed on Thursday (September 24) with a gain of only 39 points or 0.15 percent. On Friday, the Indian markets remained closed on account of Eid-ul-Zuha.
The Indian equity markets opened on a lower note on Monday, following a sharp downward revision of Chinese industrial profits.
Japan's Nikkei index fell by 1.32 percent. However, Hong Kong's Hang Seng index inched up by 0.43 percent, while China's Shanghai Composite Index rose by 0.28 percent.
Notwithstanding the initial downside corrections, the Indian equity markets pared their initial losses due to clarification on minimum alternative tax (MAT), as well as Silicon Valley's positive response to Prime Minister Narendra Modi's pitch on "Digital India".
The gains were short lived as mass exodus of buyers were witnessed during the later half of trade. The investors were spooked by the US Federal Reserve Chairman Janet Yellen speech which hinted at the possibility of a rate hike at the end of the year.
On Monday, the wider 50-scrip Nifty of the National Stock Exchange (NSE) also closed in the red. It shed 73 points or 0.93 percent at 7,795.70 points.
The S&P BSE Sensex, which opened at 25,922.71 points, closed at 25,616.84 points -- 246.66 points or 0.95 percent down from the previous day's close at 25,863.50 points.
The Sensex touched a high of 25,936.89 points and a low of 25,593.56 points in the intra-day trade.
Observers pointed out that negative Asian market cues coupled with anxiety over the upcoming monetary policy review subdued Indian markets.
"Chinese data showing that industrial profits declined steeply did give a negative opening to Indian markets, but the Chinese story drew no surprises," Anand James, co-head, technical research desk with Geojit BNP Paribas Financial Services, told IANS.
Nitasha Shankar, vice president of research with YES Securities, said: "Indian indices closed 1 percent lower taking cues from weakness in the European markets coupled with the uncertainty in the upcoming RBI policy meet."
"Metals, media and auto’s were major drag, while pharma outperformed."
Gaurav Jain, director with Hem Securities, said: "Sentiments were affected on the back of US Fed's hint of a possible rate hike at the end of the year."
Given the volatility in the global equity and currency markets, a US rate hike by December 2015 is expected to act as a dampener for investors.
The US Fed decided not to hike its own rates due to global economic uncertainty during its Federal Open Market Committee (FOMC) meeting held on September 17.
Sector-wise, automobile, capital goods, metal, information technology (IT) and banking stocks came under heavy selling pressure.
However, consumer durables, healthcare and realty sectors supported the markets.
The S&P BSE automobile index plunged by 301.20 points, capital goods index receded by 259.09 points, metal index declined by 179.38 points, IT index was lower by 144.29 points, and banking index fell by 103.24 points.
However, the S&P BSE consumer durables index augmented by 301.85 points, healthcare index gained 20.30 points and realty index rose by 13.63 points.
Major Sensex gainers during Monday's trade were: Dr. Reddy's Lab, up 5.54 percent at Rs.4,191.85; Lupin, up 2.21 percent at Rs.2,033.50; Hindustan Unilever, up 1.43 percent at Rs.792.60; Tata Consultancy Services (TCS), up 0.57 percent at Rs.2,590.35; and State Bank of India (SBI), up 0.17 percent at Rs.239.55.
The major Sensex losers were: Tata Motors, down 6.06 percent at Rs.285.25; Vedanta, down 4.40 percent at Rs.91.20; Sun Pharma, down 3.42 percent at Rs.860.80; Infosys, down 2.91 percent at Rs.1,108.20; and Coal India, down 2.81 percent at Rs.309.65.