Global markets had been awash with liquidity from stimulus measures which saw a lot of this money being pumped into stocks. Federal Reserve Chairman Ben Bernanke, however, on Wednesday hinted at the withdrawal of stimulus, which would tighten liquidity leading to a fall in global markets and the Sensex.
The Nifty ended the day lower by 166 points, while the Sensex fell a huge 539 points (provisional), the biggest per centage fall since Sept 2011. Major indices in Europe were trading 2 per cent lower, while most of Asia also ended the day with huge losses, particularly those with huge current account deficits.
The Indian rupee also collapsed and according to news reports hit the 60 mark against the dollar, as fears remained that foreign funds would exit the Indian markets following the Federal Reserve statement on liquidity. Frequent statements from Indian government officials failed to soothe nerves.
Private sector banking stocks were the worst hit in trade, since they are heavily owned by foreign funds. HDFC Bank, ICICI Bank, Axis Bank and IndusInd Bank plunged 3-5 per cent in trade.
Heavyweights, ITC and Reliance were not spared either with both dropping sharply. The only stocks that remained resilient were the IT stocks on hopes that the falling rupee would boost margins and revenues.
Steel stocks were also hit badly in trade with Tata Steel and Jindal Steel falling 6-7 per cent.
Marketmen believe that the downslide in the Indian markets is likely to continue as India's economic fundamentals remain weak.