Claims of a successful hydrogen bomb test by North Korea sent Indian equities south on Wednesday, with weak economic data from China and the US and geopolitical concerns in West Asia adding to the nervousness.
The investors appeared to have ignored the Nikkei India purchasing managers' index for services rising to a 10-month high in December, leading the key sensitive index (Sensex) of the Bombay Stock Exchange (BSE) to register a drop of nearly 275 points intra-day.
At that point, the Sensex was ruling at a three-week low, down nearly 0.85 percent.
The index eventually closed at 25,406.33 points, with a loss of 174.01 points, or 0.68 percent over the previous day's close at 25,580.34 points.
At the National Stock Exchange (NSE), the broader 50-share Nifty ended at 7,741 points, with a loss of 43.65 points, or 0.56 percent.
"The markets slipped sharply lower on account of huge selling pressure across the globe," said Gaurav Jain, director with leading brokerage Hem Securities.
"Geopolitical risks posed by North Korea's latest nuclear test and geopolitical tensions in the Middle East, China's economic slowdown worries, weakening of rupee against dollar and weak global cues weighed on the sentiment of the street -- thereby posting losses," he said.
"Although value buying as well as Finance Minister Arun Jaitley's reform rhetoric pushed prices higher earlier in the day, risk appetite was kept in check due to North Korea's test of nuclear device," added Anand James, co-head of technical research with Geojit BNP Paribas.
"Consequently, the rise in Chinese equity markets failed to prop Indian markets further higher."
Despite the overall lack of investor appetite, there were some star performers of the day, notably Reliance Industries, which saw its scrip rise 2.67 percent at Rs.1,031.95, while Cipla gained 1.75 percent at Rs.652.40 and Tata Consultancy Services (TCS) was up 1.31 percent at Rs.2,381.20.
On the flip side, ITC was the top loser, down 2.96 percent at Rs.315.10, followed by ICICI Bank, down 2.59 percent at Rs.250.10 and Tata Motors, down 2.39 percent at Rs.365.70.
The stocks in metals, auto and fast-moving consumer goods counters came under particular pressure.
Sector-wise, automobile, capital goods and banking indices came under selling pressure.
The S&P BSE automobile index plunged by 226.96 points, capital goods index receded by 184.80 points and banking index declined by 152.71 points.
On the other hand, only S&P BSE energy index gained during the day's trade. It rose by 36.92 points.
The foreign institutional investors (FIIs) were net sellers during the day's trade, while domestic institutional investors (DIIs) were net buyers.
According to data with stock exchanges, FIIs divested Rs.242.48 crore, while DIIs bought stocks worth Rs.576.57 crore.
Apart from equities, the rupee got battered during the day's trade. It weakened by 23 paise to close at 66.82-83 to a US dollar from its previous close of 66.60 to a greenback.
Analysts predicted volatility in the coming trading sessions, which is expected to be stroked by the US non-farm payroll figures scheduled for release on late Thursday India time, along with minutes of latest FOMC (Federal Open Market Committee) meeting.
Both the events could provide indications on future US rate hikes.
Besides, investors are expected to maintain a cautious outlook, given the upcoming domestic macro-data on industrial output, retail inflation and the third-quarter earning results which start coming in from January 12.
