Key benchmark indices continue to trade lower weighed down by financials and capital goods shares.
By 13:35, the Sensex was lower by 152 points at 20,708 and the Nifty dipped by 48 points at 6,170 levels.
Markets trimmed intraday losses in early afternoon trade after Finance Minister P. Chidambaram said that India is better prepared to deal with any consequences of the US Federal Reserve's move to reduce monetary stimulus.
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Meanwhile, NSE's volatility index, or the domestic equivalent of the VIX fear gauge, marked its lowest level since May 7 after the RBI kept interest rate unchanged in its policy review.
According to Devangshu Datta,Technical Analyst and market expert, “More downside expected. The FIIs will probably cut Emerging Market allocations to adjust for the taper. The rupee could also slide. Technically, if the Nifty breaks support at 6150, it could slide till 6100 and then 6050 etc., there's support at every 50 pts distance. On the upside, there is now resistance at 6200.”
Japan's Nikkei share average rose to its highest close in six years on Thursday on the back of a big drop in the yen after the US Federal Reserve announced it would start unwinding its historic stimulus.
Japanese equities were bolstered by a surge in the dollar/yen to over five-year highs in the wake of the Fed decision, underscoring the benefits of a weak currency for Japan's export-reliant economy.
Back home, foreign institutional investors (FIIs) bought shares worth a net Rs 1198.60 crore on Wednesday, 18 December 2013, as per provisional data from the stock exchanges.
The rupee weakened sharply in trade after the US Fed decided to begin the tapering.
On the sectoral front, BSE Bankex, Capital Goods, Realty, Oil & Gas, Power, Auto, FMCG and Consumer Durables indices have declined between 1-3%. However, BSE IT index has surged over 2%.
The main losers on the Sensex at this hour include ICICI Bank, L&T, HDFC, ONGC, Bharti Airtel, SBI, Tata Power, BHEL and Bajaj Auto.
Index heavyweight Reliance Industries has dropped by 1%.
Bank pivotal have reversed initial gains in volatile trade. The Reserve Bank of India kept its main lending rate viz. the repo rate unchanged at 7.75% after a monetary policy review on Wednesday contrary to market expectations of a 25 basis point increase.
Shares of information technology (IT) are in demand on the bourses with the Bombay Stock Exchange (BSE) IT index hitting a record high on expectations of a rise in demand in the coming year.
On Wednesday, the US Federal Reserve announced that it would start tapering its massive stimulus program in January, giving a vote of confidence to the recovery in the US economy and job market.
Tata Consultancy Services (TCS), Infosys, HCL Technologies, Wipro, Tech Mahindra and Hexaware Technologies are trading higher in the range of 1-5% on the BSE.
Lupin is trading higher by 3% at Rs 917, extending its previous day’s 1.3% gain after the company said it has launched the generic version of ViiV Healthcare's (ViiV) Trizivir tablets in the US market with 180-days of marketing exclusivity.
The market breadth in BSE remains weak with 1,164 shares declining and 999 shares advancing.