BSE Sensex declined 2.02%, or 426.11 points, to 20,707 points and the National Stock Exchanges (NSEs) broader 50-share Nifty ended the day lower by 2.1%, or 130.9 points, to 6,135.
Sensex registered its biggest daily fall since September 3. Notably, key US indices such as the Dow Jones Industrial Average had ended down nearly 2% on Friday.
The sentiment for the benchmark indices seems to have taken a U-turn considering the indices had logged gains for four consecutive sessions last week. On Thursday, the Sensex had closed at a record high of 21,373.66, while Nifty had ended at 6,345.65, within touching distance of its December 2013 high of 6,364.
The case for emerging markets has become weaker after the beginning of the US taper. Investors have been looking for green shoots here and there and taking the markets higher, but it seems the slowdown is here to stay, said UR Bhat, managing director, Dalton Capital Advisors (India).
FIIs sold shares worth $212 million on Monday, paring their net purchases for January to $270 million. Experts suggest the pace of FII buying is slowing down and fears of a more aggressive cut in quantitative easing might further impact flows to emerging markets such as India. FIIs had bought about $20-billion worth of Indian shares in the calendar year 2013. The US FOMC is slated to meet for two days on January 28 and January 29 to review decision with regard to the taper.
Among its peers, all of the key Asian indices ended in the red on Monday. Nikkei 225, Hang Seng and Jakarta Composite shed more than 2% each. European indices also opened weak, with FTSE 100, DAX and CAC trading down anywhere between 0.01% and 1.35% at 6.30 pm IST.
Back home, all of the 13 BSE sectoral indices ended in red. Interest rate sensitive sectors declined the most ahead of the RBI policy, with BSE Realty falling the most at 6.8%. The BSE Bankex (3.9%), BSE Metal (3.8%), BSE Auto (3.3%) and BSE Power (3.01%) were the other major losers. The market breadth was weak with 1953, or 72%, of the stocks declining compared with 641 stocks that ended higher.
Tata Steel (5.22%), Tata Motors (5.2%), ICICI Bank (4.06%) and Maruti Suzuki (3.42%) were the top losers of the day. Auto maker Tata Motors said its managing director Karl Slym died in a fall from the Shangri-La hotel in Bangkok.
India VIX, a volatility index based on the CNX Nifty index option prices, slid 18% on Monday to 18.67.