A crash of Chinese markets, coupled with disappointing macro-economic data and profit booking, plunged the Indian equity markets during the mid-afternoon trade session on Monday.
This led to a barometer index of the Indian equity markets to recede by 548 points.
Initially, both the bellwether indices of the Indian equity markets opened on a flat note, but soon plunged deep in the red, following their Asian peers.
Asian bellwethers declined on the back of the Chinese markets' crash which was triggered by a lower-then-expected purchasing managers' index (PMI) data.
The PMI data battered the Chinese Shanghai index which halted trade for the remainder of the day after crashing by seven percent.
Furthermore, the cascading impact of the falling Chinese markets impacted other regional exchanges including the Japanese indices which declined by three percent.
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In addition, weak domestic PMI data further dented sentiments. This coupled with lack of participation and recent consolidation at the bellwethers prompted some investors to book profits.
Besides, investors were seen cautious regarding the upcoming third-quarter earnings season which starts from January 14.
The Indian VIX (volatility index) stood at 16 percent in the mid-afternoon trade session and was approaching the upper band of 20 percent, as correction intensified.
The barometer 30-scrip sensitive index (Sensex) of the Bombay Stock Exchange (BSE) sunk by 548 points, or 2.09 percent.
Similarly, the wider 50-scrip Nifty of the National Stock Exchange (NSE) was trading deep in the red. It dived by 171 points, or 2.15 percent, at 7,792.05 points.
The Sensex of the S&P BSE, which opened at 26,116.52 points, was trading at 25,612.91 points (at 2.00 p.m.) -- down 548 points or 2.09 percent from its previous day's close at 26,160.90 points.
The Sensex has so far touched a high of 26,116.52 points and a low of 25,612.59 points in intra-day trade.
The Sensex closed the previous session on January 1, up a paltry 43.36 points, or 0.17 percent, while the Nifty had inched-up by 17 points, or 0.21 percent.
The market breadth was in the favour of the bears -- with 1,696 declines and 1,077 advances.
"The correction in the Indian markets was sparked by the Chiness crash of around seven percent. There was a broad-based selling which was led by metal and automobile stocks," Anand James, co-head, technical research desk with Geojit BNP Paribas Financial Services, told IANS.
"Nifty's climb towards the 8,000-mark prompted some investors to book profits. In the background, a less-than-expected India PMI data coupled with sector specific developments in the telecom sector dented sentiments."
Nitasha Shankar, vice president for research with YES Securities elaborated that Indian headline index Nifty failed to trade beyond its previous peak of 8,000 point, leading to the sharp correction.
"Moreover, a negative divergence had developed on shorter time frame charts suggesting lack of momentum in the up-move, portending to a fall in coming sessions," Shankar said.
"All major indices are trading in the red as bears dominate the day. Broader markets are also down in line with the headline indices."