A global rout amid expectations that the Federal Reserve may reverse its ultra-easy monetary policy earlier than expected dragged Indian equities sharply lower on Thursday. Fed chief Bernanke's comments that an exit could be initiated in the "next few meetings" sapped demand for equities, sending stocks plunging across the board.
Minutes of the Federal Reserve's April 30-May 1 meeting revealed "a number" of members favor tapering the central bank's $85-billion bond-buying program as early as the June meeting if the labor market continues to improve.
Adding to investors' worries, preliminary data from HSBC showed that China's manufacturing activity contracted for the first time in seven months in May, reflecting slower domestic demand and ongoing external headwinds. The purchasing managers' index showed a preliminary reading of 49.6 in May compared with a final reading of 50.4 in April.
The benchmark 30-share Sensex ended the session down 388 points or 1.93 percent at 19,674, with 28 of its components retreating. Mortgage lender HDFC and pharmaceutical firm Sun Pharma bucked the downward trend to end up about half a percent each. Tata Motors advanced 0.8 percent on the NSE.
The broader Nifty index fell by 127 points or 2.1 percent to 5,967, while the BSE mid-cap and small-cap indexes ended down 2 percent and 2.2 percent, respectively. The rupee was trading weak at its lowest level in more than eight months.
Stocks fell across Asia, with Japan's Nikkei index plunging over 7 percent below 14,500 as the yen rose sharply against both dollar and the euro and yields on the benchmark 10-year Japanese government bonds jumped to as high as 1.0 percent, its highest level in over a year, prompting the Bank of Japan to announce a two trillion yen ($19 billion) fund-supplying operation to curb volatility in bond markets.
Australia's All Ordinaries index lost 2 percent, China's Shanghai Composite index and South Korea's Kospi shed about 1.2 percent each and Hong Kong's Hang Seng retreated 2.5 percent. The major European averages were down 2-3 percent.
There is no need for any kind of 'nervousness' and the Indian markets should read the situation correctly rather than being influenced by something happening elsewhere, Finance Minister P Chidambaram said.
SBI shares led the plunge, dropping 8 percent after the nation's largest lender reported a 19 percent fall in quarterly net profit on the back of higher provisions for non-performing assets and lower interest income.
Jaiprakash Associates slumped 8.2 percent and Larsen & Toubro tumbled 5.8 percent in the wake of its disappointing results released yesterday, while Axis Bank, PNB, Jindal Steel, Reliance Industries and DLF retreated 4-7 percent.
Ranbaxy Laboratories plummeted 7 percent after Japanese pharmaceuticals major Daiichi Sankyo said it is initiating legal steps against certain former shareholders of the company for concealing and misrepresenting critical information on the probe by U.S. agencies.
Wockhardt hit the 20 percent lower circuit limit after the U.S. Food and Drug Administration published an "import alert" on its Aurangabad unit. Oracle Financial Services Software soared 8.3 percent after the company received strong response for its share sale.
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