The BSE Sensex slipped 2.12 percent to a two-week closing low on Monday after a sharper-than-expected fall in the country's October industrial output compounded concerns over slowing economic growth.
The 30-share BSE index closed 343.11 points down at 15,870.35, its lowest closing level since November 25. All but three of its components declined. The index fell as much as 2.3 percent during the day.
The fear is now turning into reality...The data shows that the India growth story is perhaps just a story, said Jagannadham Thunuguntla, research head at SMC Global Securities.
Industrial output fell for the first time in more than two years in October as waning consumer demand took a toll. The output plunged by 5.1 percent, far worse than a median forecast for a 0.5 percent drop in a Reuters poll.
Last week, India sharply cut its economic growth forecast for the current fiscal year ending in March to between 7.25 percent and 7.75 percent from its original estimate of 9 percent.
The mood is changing for worse, said Arun Kejriwal, strategist at research firm KRIS, adding signals from the domestic economy or overseas were not encouraging.
The Sensex has fallen more than a fifth this year and is one of the worst performing markets in the world.
A slowdown in capital expenditure is likely to weigh on the next fiscal year's economic growth and corporate earnings, SMC Global's Thunuguntla said. He, however, does not expect the central bank to begin easing its policy stance at its review this week
The Reserve Bank of India has raised rates 13 times since March 2010, which has hit growth but not been able to tame a near double-digit inflation yet.
Reliance Industries (RELI.NS), which has the heaviest weight on the benchmark index, led the losses and closed 3.73 percent lower at 727.50 rupees.
Lenders State Bank of India (SBI.NS) and ICICI Bank (ICBK.NS) lost 4.97 percent and 3.29 percent respectively. BSE banking index fell 2.98 percent.
Passenger and commercial vehicles maker Tata Motors (TAMO.NS) fell 3.09 percent, while top car maker Maruti Suzuki (MRTI.NS) fell 2.8 percent. High interest rates and fuel prices have chipped away demand for vehicles, weighing on automakers' shares.
India's showpiece $76-billion software services sector, which depends on Europe for a significant chunk of its revenue, bucked the trend after European Union leaders agreed on fresh steps to solve the region's credit crisis.
Top software exporter Tata Consultancy Services (TCS.NS) and No. 2 Infosys (INFY.NS) rose 0.68 percent and 1.11 percent, respectively.
There is some speculative buying in the IT space as last week's announcement for resolving euro zone debt crisis has boosted sentiment, said Ambareesh Baliga, chief operating officer at brokerage Way2Wealth.
Twenty-six of the 27 European Union leaders on Friday agreed to pursue stricter budget rules for the single currency area and also to have euro zone states and others provide up to 200 billion euros in bilateral loans to the International Monetary Fund to help tackle the crisis.
The 50-share NSE index fell 2.1 percent to 4,764.60 In the broader market, there were almost 4 losers for every gainer on a total volume of 500 million shares.
STOCKS THAT MOVED
* Emami Ltd (EMAM.NS) tumbled 8.9 percent to 355.10 rupees, after a fire in a private hospital it part owns in the eastern Indian city of Kolkata on Friday, killing at least 84 people.
* State-run Union Bank of India (UNBK.NS) fell 3.7 percent to 206.10 rupees after Goldman Sachs downgraded the bank to sell from hold. Goldman Sachs said asset quality issues and lower Tier 1 ratio will hinder loan growth and it expects the bank to lose market share in advances.
TOP THREE BY VOLUME
* Jaiprakash Associates (JAIA.NS) on 23 million shares
* Suzlon Energy (SUZL.NS) on 16.91 million shares
* IFCI (IFCI.NS) on 16.37 million shares