Just about every bit of negative news impacted the 30-share BSE Sensex on Tuesday, dragging it below the 18,000-mark during the day. The index recovered marginally later, closing 305.54 points or 1.67% lower at 18,022 points while all markets in Asia, US and Europe rose. The broad-based Nifty shed 88.70 points or 1.61%, closing at 5,417.20 points.

Fears of earnings downgrades because of macroeconomic headwinds ? in terms of high inflation and rising interest rates ? coupled with seeming inaction on the part of the government kept foreign investors out and domestic institutional investors only mildly interested. ?The government has been one of the principal reasons for the pullout of FII money,? said Pradip Shah, chairman, IndAsia Fund Advisors.

With Tuesday?s fall, the markets have hit the lowest level in five months. And in just five sessions, the Sensex has lost about 6% and over 1,100 points. After a double-digit fall last month, February started on a bearish note, with the Sensex falling for the fifth day in a row on the back of heavy selling by foreign investors. Fears of crude oil breaching the $100-mark due to the political turmoil in Egypt are putting further pressure on markets as it will boost India?s import bill. ?I think markets will correct in the short term as we have got quite a few headwinds,? said Jyotivardhan Jaipuria, head of research, DSP Merrill Lynch.

Market experts believe still there is a lot of pain left in the markets as FIIs will continue to pull out. FIIs have now sold nearly $1.6 billion in stocks this year after having shopped for a record $29 billion worth of Indian equities in 2010.

Indian stock markets have been among the worst performing global markets, with FII money seen moving out to markets like South Korea and Taiwan. ?Last year, we got record FII flows. Some of that may start to reverse this year as people find other markets attractive,? said Jaipuria. ?Money is beginning to flow to the US as the market is looking cheaper because of greater certainty in growth,? said Shah.

Between November 5, 2010, when the Sensex hit 21,005 points and now, investors have lost more than close to Rs 13 lakh crore in wealth. This year alone, the loss has been over Rs 8 lakh crore.

With FIIs offloading stocks worth over Rs 1,000 crore on Tuesday, all sectoral indices closed in the red, with rate-sensitive realty and auto indices falling the most.

The BSE Small and Midcap indices, which have underperformed the benchmark this year, declined 1.6% and 1.4% respectively. Only three stocks in the Sensex closed in the green and the breadth was negative with the advance-decline ratio at 1:2.

The cash turnover on the NSE stood at Rs 13,697 crore as against the six-month average of about Rs 15,000 crore. Meanwhile, the F&O turnover stood at Rs 1.24 lakh crore in line with the six month average.