Negative Asian market cues and profit-booking, coupled with anxiety over the upcoming domestic factory output data, led to a barometer index of the Indian equities shedding more than 97 points on Thursday.
Indian markets were initially hammered by profit-booking and a fall in the Asian bourses. Global markets had nose-dived on retreating US stocks and the news about Standard & Poor's downgrading of Brazil's credit rating.
However, expectations that Bank of England (BoE) will continue with its "easy monetary policy" by maintaining lower interest rates and the gains made by the rupee buoyed markets.
However, despite the gains made during the later stages of the day's trade, Indian equities ended in the red.
The losses at the barometer 30-scrip sensitive index (Sensex) of the Bombay Stock Exchange (BSE) ended a two-day relief rally which had started on Tuesday.
Profit-booking was witnessed at the barometer index which had gained a total of 825.77 points during the two-day rally.
Furthermore, the wider 50-scrip Nifty of the National Stock Exchange (NSE) regained from the day's lows to close 30.50 points or 0.39 percent lower at 7,788.10 points.
The S&P BSE Sensex, which opened at 25,522.96 points, closed at 25,622.17 points -- down 97.41 points or 0.38 percent from the previous day's close at 25,719.58 points.
The Sensex touched a high of 25,733.70 points and a low of 25,287.50 points in the intra-day trade.
Analysts explained that the fall in the US markets and S&P's downgrade of Brazil's ratings had a cascading effect on the Asian markets, which were subdued. This impacted sentiments in the domestic exchanges and eroded investors' confidence.
"The global relief rally is over due to yesterday's fall in the US bourses and subsequently, the weakness in the Asian markets, especially the Chinese exchanges today (Thursday)," Anand James, co-head, technical research desk with Geojit BNP Paribas Financial Services, told IANS.
"With no immediate domestic triggers, the Indian markets followed the international trend," James said.
The continuous slide in the Chinese markets had spooked global investors and dampened Indian equities on fears of another recession due to the slowdown in the $10 trillion Asian economy.
Among the Chinese markets, Hong Kong's Hang Seng tumbled by 2.57 percent and Shanghai Composite Index was lower by 1.45 percent. Japan's Nikkei dropped by 2.51 percent.
On Wednesday, the US-based Dow Jones Industrial Average dipped 239.11 points, or 1.45 percent, to 16,253.57. The S&P 500 lost 27.37 points, or 1.39 percent, to 1,942.04. The Nasdaq Composite Index was down 55.40 points, or 1.15 percent, to 4,756.53.
James observed that the market volatility was flared up by the likelihood of below-average industrial output data which is slated to be released on Friday.
"The markets have priced-in that a lower data on eight core industries (ECI) will impact the IIP (Index of Industrial Production). The anxiety is being flared-up as the data will be released tomorrow (Friday)," James added.
The ECI for select factory output slowed to 1.1 percent growth in July from an increase of 3 percent in the previous month. The ECI's constituents contribute a whopping 38 percent to the IIP.
The day's high volatility was doused by anticipation of the BoE's decision to maintain low interest rates.
"The market gained on the back of anticipation that the BoE will maintain interest rates," Vaibhav Agrawal, vice president, research, Angel Broking, told IANS.
"The BoE did maintain rates but the decision came after the market hours here, so further effect of the BoE's decision and commentary will be seen in the Indian markets tomorrow (Friday)."
Sector-wise, out of 12 sub-indices of the BSE only capital goods and fast moving consumer goods (FMCG) managed to stay afloat.
The S&P BSE consumer durables index plunged by 187.324 points, information technology (IT) index plummet by 81.90 points, metal index receded by 56.44 points, technology, entertainment and media (TECK) index declined by 48.05 points and bank index decreased by 25.16 points.
The S&P BSE capital goods rose by 145.82 points and FMCG index inched higher by 1.14 points.
Major Sensex gainers in Thursday's trade were: Tata Motors, up 2.71 percent at Rs.354.25; BHEL, up 1.74 percent at Rs.216.55; Bajaj Auto, up 1.47 percent at Rs.2,302.45; Larsen and Toubro (L&T), up 1.31 percent at Rs.1,613.25; and ICICI Bank, up 1.15 percent at Rs.267.45.
The major Sensex losers were: Hindalco Industries, down 2.61 percent at Rs.76.55; HDFC, down 1.89 percent at Rs.1,164.15; State Bank of India (SBI), down 1.71 percent at Rs.227.60; ONGC, down 1.71 percent at Rs.226.65; and Wipro, down 1.71 percent at Rs.551.40.
