Expectation of an interest rate hike in the US, bearish comments from the Eurozone, strengthening crude oil prices and weakening of rupee value dented investor sentiments - leading to a barometer index to dive 563 points on Friday.
The barometer 30-scrip sensitive index (Sensex) of the Bombay Stock Exchange (BSE) plunged by 562.88 points or 2.18 percent.
Bearish sentiments were also witnessed at the wider 50-scrip Nifty of the National Stock Exchange (NSE). It closed 168 points or 2.15 percent down at 7,655.05 points.
The S&P BSE Sensex, which opened at 25,772.58 points, closed at 25,201.90 points -- down 562.88 points or 2.18 percent from the previous day's close at 25,764.78 points.
The Sensex touched a high of 25,775.38 points and a low of 25,119.06 points in the trade.
Analysts cited the upcoming US non-farm payroll data as the main trigger for the downward trajectory of the markets.
The markets are nervous due to the fact that a strong macro data can influence the US Fed's rate decision expected on September 16-17.
"The investors were anxious about the release of non-farm payroll data. This data just before the US Fed meet can make or break the case for a rate hike there. On a sequential basis this data has been coming in quite strong," Anand James, co-head, technical research, Geojit BNP Paribas, told IANS.
According to the US Bureau of Labor Statistics, the total non-farm payroll employment increased by 215,000 in July -- however, the unemployment rate remained at 5.3 percent.
The macro data represents the total number of US work force employed by any business, apart from the government, private households, non-profit organisations and farm sector.
The data also indicates the rate of economic growth and inflation.
The US Fed is expected to announce its decision to hike interest rates after a decade or so of easy monetary regime with interest rates pegged at near zero levels during its policy meet scheduled on September 16-17.
High interest rates in the US are expected to lead away the foreign portfolio investors (FPIs) from emerging markets like India. It is also expected to dent business margins as access to capital from the US will become expensive.
James said the other worry for the investors and the government alike is the gradual rise in the crude oil prices, especially at the time of a weaker rupee.
"The steep rise of around $10 per barrel in 2-3 day's time is a cause of worry. Especially given the fact that the rupee is falling," James added.
On Thursday, the West Texas Intermediate (WTI) closed at $46.75 a barrel, while Brent crude settled at $50.68 a barrel. Both the indices were around $42-45 per barrel a week ago.
The rupee weakened during Friday's trade by 23 paisa and closed at Rs.66.47 to a US dollar from its previous close of Rs.66.24.
Gaurav Jain, director with Hem Securities elaborated that the carnage on the Indian benchmarks was in line with its global partners.
"Continued selling pressure by the FPIs, weakness in rupee and global jitters weighed on the sentiment. The European Union (EU) stimulus packaged even couldn't help the markets recover," Jain added.
The global stock markets fell despite the European Central Bank's (ECB) Thursday's announcement of its plans to either increase the monetary stimulus value or extend the period of its assets purchase program.
The ECB has cautioned against growing external instability pointing towards the Chinese economic slowdown.
Sector-wise, all the 12 sub-indices of the BSE were trading in the red.
Intense selling was observed in banking, healthcare, automobile, capital goods, information technology (IT), metal and oil and gas stocks.
The S&P BSE banking index plunged by 502.66 points, healthcare index receded by 425.04 points, automobile index declined by 400.24 points, capital goods index lost 316.42 points, IT index dropped by 262.74 points.
The S&P BSE metal index fell by 164.65 points and oil and gas index edged-lower by 122.65 points.
Major Sensex gainers during Friday's trade were only: Bharti Airtel, up 0.75 percent at Rs.349.85 and Coal India, up 0.32 percent at Rs.346.75.
The major Sensex losers were: Vedanta, down 4.84 percent at Rs.93.30; Gail, down 4.73 percent at Rs.280.90, Tata Steel, down 4.66 percent at Rs.218.95, Hindalco Inustries, down 4.34 percent at Rs.73.85 and Axis Bank, down 3.61 percent at Rs.468.85.
The Chinese markets remained closed on account of Victory Day celebrations held to commemorate China's victory over Japan in the Second World War. Japan's Nikkei closed 2.15 percent down.
In Europe, London's FTSE 100 index tumbled by 1.67 percent, French CAC 40 inched-down by 2.21 percent and Germany's DAX Index dropped by 2.14 percent at close of trading here.
