The cup of woes for markets spilled over as the Sensex on Tuesday plunged over 514 points to end at nearly 6-month low of 26,305 and the Nifty crashed below 8,200 after fears of acute cash crunch arising out of demonetisation played out amid capital outflows and surging US yields.
Expectations ran high that President-elect Donald Trump's policies would boost spending, which in a way could push up inflation. That rubbed off on the dollar, which rose.
Lacklustre macroeconomic numbers and poor quarterly data by blue-chips only roiled the scene.
"As the demonetisation drive entered the second week, the ripple effect of cash squeeze continued across sectors. Not all banks, which stand to gain from the deposit boom, could sustain last week's surge as the near term prospects...continued to be clouded by asset quality worries," said Anand James, Chief Market Strategist, Geojit BNP Paribas Fin Services.
The Sensex opened lower at 26,809.61 and dropped further before ending down 514.19 points, or 1.92 per cent, at 26,304.63, a level last seen on May 25. It had lost 698.86 points on Friday on worries that US President-elect Donald Trump's impending reforms may spark further outflows from emerging markets (EMs).
The NSE Nifty fell sharply by 187.85 points, or 2.26 per cent, to 8,108.45, its lowest closing since June 27 when it settled at 8,094.70. Intra-day, it cracked below the 8,100-mark to hit a low of 8,093.20.
The currency market saw the big impact, with the rupee sliding 50 paise to 67.75 during the day.
Sentiment continued to be bogged down by the government's move last week to withdraw high-value notes, brokers said.
In a surprise move, the government had banned Rs 500 and Rs 1,000 currency notes in a bid to curb black money.
Persistent capital outflows from EMs amid all major Asian currencies declining against the US dollar since Trump's shock win in the US presidential election on November 8 was another factor behind the big plunge on the domestic bourses.
For the second month of decline, wholesale inflation eased to 3.39 per cent in October, data showed on Tuesday.
Government data released on Friday showed that industrial production grew a meagre 0.7 per cent in September, mainly due to poor show by manufacturing and mining sectors coupled with decline in capital goods output.
Broader markets too remained under pressure, with the BSE small-cap index slumping 4.67 per cent and the mid-cap 3.91 per cent.
Tata Motors was the biggest loser from the Sensex pack on the day -- sinking 9.88 per cent to Rs 457.25 after the company's standalone net loss widened to Rs 631 crore for the September quarter.
Foreign portfolio investors (FPIs) sold shares worth a net Rs 1,493.27 crore last Friday, as per provisional data.
Other Asian markets finished lower as Japan's Nikkei fell 0.03 per cent while Shanghai Composite was down 0.11 per cent.
European stocks, however, were a tad higher in their early deals as the US dollar stood at an 11-month high. Key indices in the UK, France and Germany rose by up to 0.88 per cent.
Realty got the maximum pounding as it fell 5.13 per cent followed by auto 5.07 per cent, metal 4.75 per cent, and consumer durables 3.48 per cent.
However, only BSE IT index managed to keep its head up, logging gains of 0.30 per cent. This uptick was fuelled by buying in Wipro, TCS and Infosys, rising by up to 1.27 per cent.
A good 20 stocks out of the 30-share Sensex pack ended lower while the remaning advanced. Both the stock exchanges, BSE and NSE, remained shut on Monday for Guru Nanak Jayanti.
The market breadth remained negative as 2,354 stocks ended lower, 346 closed higher while 113 ruled steady.
The total turnover on BSE read Rs 6,529.98 crore, much higher than Rs 3,461.19 crore registered during the previous trading session.
Malaysia's ringgit and South Korea's won lost at least 2.8 per cent each. A gauge of the greenback erased its losses this year as US Treasury yields surged on speculation that Trump's pro-growth policies would boost inflation and push interest rates higher.