Indian benchmark indices registered their worst single-day fall in more than eight months on Friday as concerns related to the review of the double taxation avoidance agreement or DTAA with Mauritius came back to haunt investors. Fear of a sell-off by foreign investors as the R hit a four-month low tamped down sentiment further.

The 30-share benchmark Sensex, which started the day above 17,000 points, dipped below that psychological mark as index heavyweights across sectors were dumped by institutional investors wary of the fact that their income could come under the tax scanner. The index finally closed at 16,831, down 320.11 points or 1.87%. This is the first time since January 24 that the Sensex has closed below the 17,000 mark. This is also the highest single-day fall in absolute terms since August 19, 2011.

The broader Nifty on the NSE, meanwhile, managed to stay above the 5,000 mark, losing 101.55 points to close at 5,086.85. The day?s fall has, however, made the broader index breach the 200 DMA (daily moving average) of 5,118.

Earlier in the day, investor sentiment took a hit when minister of state for finance SS Palanimanickam said that the government is considering a review of the DTAA with Mauritius to raise revenues and has held seven rounds of bilateral talks.

Market experts said that there is a general fear regarding India among the investor community and the immediate trend suggests a higher probability of a downside.

?Foreign investors who were already worried due to GAAR have now been further spooked by this fresh talk of DTAA review,? said Sonam Udasi, senior vice-president and head, research, at brokerage IDBI Capital. ?The whole element of uncertainty is impacting foreign flows.?

Adding to the market woes was the fall in the rupee, which touched a fresh four-month low of 53.92 against the dollar before ending at 53.47. The currency has depreciated 5% in the last one month and is very close to the all-time low of 54.30 hit in December. According to Edelweiss, the rupee ?could weaken further given its large underlying current account deficit?.

?There is a widespread concern related to the fall in the rupee, which is making foreign investors offload their positions in the Indian market,? said Saurabh Mukherjea, head of equities, Ambit Capital. ?The rupee movement is also impacting our current account deficit and with the ongoing concerns related to GAAR (general ant-avoidance rules) and DTAA, investors are turning bearish on India.?

Among index stocks, Reliance Industries, which has the highest weightage in the Sensex, fell 1.68% to close at Rs 726.45 on reports that the company has been issued a notice asking why it should recover its $1.46 billion invested in KG-D6 gas fields while it had not been able to raise output.

BHEL, Hero Motocorp, Infosys, ITC, Jindal Steel, Tata Steel, ONGC, NTPC and L&T all lost ground in the range of 2-5%.

Lenders including SBI, ICICI Bank, Axis Bank, HDFC Bank and PNB slipped after the Reserve Bank of India?s final guidelines to implement the Basel III capital rules made it clear that banks will have to build up their capital buffers through March 2018. The BSE Bankex index lost more than 3%.

Market experts are now waiting for Monday?s US economic data and the European election results. They feel that the markets may witness a bounce back if encouraging data pours in from the West.