During the last one hour, we saw some buying and short covering coming in ahead of expiry, cutting the overall losses, said Kishore Ostwal, chairman and managing director of CNI Research, referring to the derivatives contracts expiry on the National Stock Exchange on Thursday.
The main 30-share BSE index closed down 146.10 points at 15,727.85, with 18 of its components declining. The benchmark, which fell 0.6% on Tuesday, opened relatively flat and dipped as much as 1.3% on the day.
The BSE index has fallen more than 20% this year, making it one of the worst performing major indices. Foreign funds have pulled out a net $470 million this year, compared with net inflows of more than $29 billion in 2010.
The banking sector is under pressure because of concerns over asset quality, while the credit growth is lower, said Naresh Kumar Garg, chief executive at Sahara Mutual Fund.
The banking sector index closed down 1.98%, with top private lender ICICI Bank leading the losses, closing 3.9% lower. The countrys top lender State Bank of India shed 2.02%.
Indian banks non-performing assets, or bad loans, are expected to rise to about 2.6% of their total assets in the fiscal year ending March, from 2.3% a year ago, ratings agency Crisil said earlier this year.
Borrowers are finding it difficult to repay loans amid near double-digit inflation, high interest rate and a slowing economy.
Headline inflation in the country has barely budged from above 9% for a year now despite 13% rate increases dealt by the Reserve Bank since March 2010.