After a fairly steady start on positive global cues, the market plunged sharply into the red despite the central bank announcing a 25-basis points cut in Repo rate, as a key UPA ally DMK withdrew support to the government, blaming the centre for not taking a tough stand against the Sri Lankan government on the Lankan Tamils issue.
Shrugging off the RBI's rate cut announcement, investors began hammering down stocks as uncertainty on the political front raised doubts whether the government will be able to go ahead with its reforms initiatives.
Weak European markets and the Reserve Bank of India's statement that headroom for additional monetary easing is quite limited due to inflationary concerns added to the woes.
The BSE benchmark Sensex, which plunged to 18,939.47 a little before noon, ended the day with a loss of 285.10 points or 1.48% at 19,008.10. The Nifty index of the National Stock Exchange closed at 5745.95, down 89.30 points or 1.53% from its previous close. The Nifty touched a low of 5724.30 during the day.
The Reserve Bank of India has cut repo rate by 25 basis points to 7.5%. The Reverse Repo rate has now come down to 6.5%. The central bank, which has left CRR unchanged, says inflation remains a major concern and that room for further monetary easing is quite limited.
Interest rate sensitive banking, realty and automobile stocks, which saw some good buying early on in the session and held their course after the central bank announced a rate cut, wilted under pressure as the day progressed due to overall weak sentiment.
Capital goods, metal, PSU, power and oil stocks too mostly ended notably lower. Consumer durables stocks declined as well. Information technology stocks found some support early on, but came off their highs in late afternoon trade. Select FMCG and healthcare stocks found good support.
BHEL ended lower by a little over 5%. Bharti Airtel tumbled 4.8% on reports summons have been issued to Sunil Mittal in the additional spectrum allocation case. Sterlite Industries lost 4.2%.
Jindal Steel & Power, Mahindra & Mahindra, HDFC, Tata Steel, Larsen & Toubro, Hero Motocorp, Hindalco, ONGC, Hindustan Unilever and State Bank of India lost 2% - 4%.
Cipla, ICICI Bank, HDFC Bank, Coal India, Dr Reddy's Laboratories, Tata Consultancy Services, Tata Motors, NTPC and Reliance Industries also ended notably lower.
DLF, Reliance Infrastructure, Sesa Goa, Cairn India, Jaiprakash Associates and Punjab National Bank declined by 3% - 4%. BPCL, ACC, HCL Technologies, Siemens, IDFC, Bank of Baroda, Kotak Bank, Asian Paints, Grasim Industries, Power Grid Corporation and Ambuja Cements also ended sharply lower.
Among the few blue chips that bucked the weak trend, GAIL India (2.7%), Bajaj Auto (1.6%) and Ranbaxy Laboratories (1.4%) ended sharply higher. Lupin, Sun Pharmaceutical Industries, Maruti Suzuki and ITC closed with modest gains.
The market breadth was weak. Out of 2970 stocks traded on BSE, 1958 stocks declined. 904 stocks moved up and 108 stocks ended flat.