BSE Sensex ended (provisional) at 16,256 - down 242 points. Nifty ended at 4,889, down 60 points.
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(Updated at 1436 hrs)
Markets continued to languish in the red, albeit off the day's lows. After a flat opening, the markets wilted under selling pressure in the late morning trades. The Sensex dropped 177 points to touch a low of 16,321. However, the index has managed to recover some lost ground and is now down 131 points at 16,367. Nifty is down 35 points at 4,912.
Asian markets were also in red after erasing morning gains, following Japan's credit rating downgrade by Moody's, citing the country's large budget deficit. Hang Seng dropped 2%, while Nikkei, Straits Times and Seoul Composite shed 1% each. In Europe, however, CAC and DAX were up around 1% each.
Global investors will be looking towards the Federal Reserve's monetary action, where it is expected that Ben Bernanke will introduce some form of stimulus to bolster the ailing economy. While another round of stimulus by Federal Reserve may bring foreign institutional flows back to India, the macro-economic conditions continue remain a concern.
In other news, CLSA has cut the Sensex target by 1,000 points to 18,200. While the sharp correction in the market may suggest attractive valuations, the pace of corporate earnings downgrades has intensified in the recent results season, CLSA said.
Rate sensitive auto shares were the top losers as rising interest rates have begun to slow consumer demand for new automobiles. The BSE auto index dropped 2% to 8,152. Maruti Suzuki dropped 4%. Bajaj Auto, Tata Motors, Hero Motocorp and Mahindra & Mahindra shed 1-3% each.
The BSE IT index continued to feel the heat after S&P downgraded US from AAA to AA+. Infosys was the biggest dragger in the Sensex. The stock was down 1.2% at Rs 2,245. TCS and Wipro slipped 1-2% each.
Banking and metal stocks also slipped. SBI, Tata Steel, ICICI Bank were among the other big draggers.
Meanwhile, the FMCG index managed to hold on to gains at 3,990 - up 0.5%. Hindustan Unilever gained 0.8% while ITC moved up 0.3%.
Bharti Airtel paid Rs 1,177.5 crore to the government in the April-June quarter toward licence fees and spectrum usage charges, more than any other service provider. The shares of Bharti Airtel, however, edged 1.2% lower in trades.
