Investor sentiments were subdued on Monday, a day after the BJP-led NDA suffered a massive jolt in the crucial Bihar assembly polls.
This led a barometer index of the Indian equities to shed 134 points or 0.51 percent during mid-afternoon session on Monday.
Both, the indices of the Indian equities markets, which opened in the negative territory, plunged by almost two percent each.
Notwithstanding the slide, both the bellwether indices recovered their lost ground on the back of recent reforms measures announced for the power and banking sector. Bargain hunting too brought back investors.
However, the negative of the electoral defeat of the Bharatiya Janata Party (BJP) led formation National Democratic Alliance (NDA) in Bihar elections sustained through out the better-half of the trading day.
The BJP-led NDA is considered to be more business and reform friendly.
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The Bihar polls outcome is seen as a crucial test for the central government's popularity with the masses, especially after it failed to pass key economic reforms so far in its short tenure.
On Monday, the wider 50-scrip Nifty of the National Stock Exchange (NSE) too receded. It was lower by 37.20 points or 0.47 percent at 7,917.10 points.
Similarly, the 30-scrip sensitive index (Sensex) of the S&P Bombay Stock Exchange (BSE) plunged in the intra-day trade.
The S&P BSE Sensex which opened at 25,809 points, was trading at 26,131.45 points (at 2.50 p.m.), down 133.79 points or 0.51 percent from the previous day's close at 26,265.24 points.
The Sensex so far touched a high of 26,150.27 points and a low of 25,656.90 points in the intra-day trade.
Market observers cited the cascading impact of a combined punch from the Bihar poll outcome, heightened chances of a US rate hike and disappointing quarterly results as the reason for the markets' fall.
"The Bihar polls outcome has casted shadow over the popularity of the central government. The outcome means a stronger opposition and this may lead to delays in future reforms measure," Anand James, co-head, technical research desk with Geojit BNP Paribas Financial Services, told IANS.
"The earlier euphoria surrounding a stable and majority central government seems to be waning and investors look pessimistic in chasing higher prices."
The poll outcome has cast a shadow over the central government's ability in pushing key economic reforms likes the goods and services (GST) and land bill in the upcoming winter session of parliament.
Furthermore, the heightened chances of a US rate hike in December after better-than-expected data released late on Friday and hawkish comments from the US central banks have spooked investors.
"Better-than-expected US jobs data and weak Chinese trade data also added to the pressure. We expect markets to trade in a range as market participants would refrain from taking huge positions in a curtailed week," , Vaibhav Agrawal, vice president, research, Angel Broking, told IANS.
The US non-farm payrolls data showed an increase of 271,000 new jobs for October, the biggest rise since December 2014, which plunged the unemployment rate to a seven and a half years low of five percent.
A US rate hike could potentially lead to massive amounts of pull-back of foreign funds from emerging markets (EMs) like India. Besides, sucking away funds from EMs like India it will dent business margins, as access to capital from the US will become expensive.
In addition, the quarterly results season which has so far been disappointing at best, is expected to remain tepid.