The BSE Sensex fell on Wednesday as blue chips such as Tata Motors declined after the rupee slumped to a record low, escalating worries foreign investors may exacerbate outflows and dimming chances of a rate cut by the Rerserve Bank of India.
The rupee breaching the key psychological level of 60 to the dollar has worsened fears about the current account deficit and complicated the task for policy makers looking to revive an economy that grew at its slowest in a decade in 2012/13.
The falls in the rupee also led to a slump in bond prices, indicating receding bets the central bank would cut interest rates in a country still faced with the prospect of losing its investment-grade rating.
In recent months, the reform process has sputtered, taking some of the shine off India for investors, with FIIs selling shares worth 105.50 billion rupees in 11 consecutive sessions to Monday.
"Continued weakness in the rupee and FIIs selling in equities is creating a negative mood in the market, as investors are apparently selling on every rally," said Rakesh Goyal, senior vice president at Bonanza Portfolio Ltd.
The benchmark BSE Sensex fell 0.41 percent, or 77.03 points, to end at 18,552.12, ending near its lowest close in 2 months, hit on Monday.
The broader Nifty fell 0.36 percent, or 20.40 points, to end at 5,588.70, closing below the psychologically important 5,600 level.
Blue chips hit by the rupee slump include Tata Motors
Jeweller Gitanjali Gems
Another jewellery maker, Rajesh Exports
Among stocks that gained, Reliance Capital