Indian stock index falls 3.1 pct on crisis worries

The benchmark Sensex sank 366.88 points, or 3.14 percent, to 11,328.36, with consumer goods and information technology companies leading the decline.

The market rallied in the afternoon after hitting an interday low of 10,740.76.

Amitabh Chakraborty, president of equities at Religare Securities Ltd. in Mumbai attributed the swoon to selling by foreign hedge funds and institutions, and fears that the fiscal crisis has started to leach out from Wall Street into the real economy, hurting Indian software service companies and Chinese manufacturers in the process.

"Most Indian information technology companies are really exposed to the downturn," he said. "Their basic business model will come under pressure."

Foreign institutions have yanked $9.9 billion from the market this year, and Chakraborty expects that number to rise to between $13 billion and $13.5 billion by year's end.

Domestic institutions have cushioned the fall, but analysts say Indian mutual funds have been buying less in recent days, as they struggle with losses.

Chakraborty said government-owned life insurance companies continue to scoop up index stocks, but that, he said, "is more like index management than buying based on conviction."

Information technology stocks went into a spiral Wednesday, after reports that Goldman Sachs had downgraded its outlook on the sector to cautious, because of turmoil in global financial markets.

Wipro closed down 7.9 percent. Satyam fell 5.1 percent, and Infosys fell 3.8 percent. TCS slid 5.1 percent.