India's benchmark Sensex lost the most in more than a year as lower oil prices and political uncertainties made investors jittery. Other Asian markets were also down.
The S&P BSE Sensex fell 3.09 percent and stood at 26,981.88 in afternoon trade.
Lower oil prices are a positive for India that imports 80 percent of its energy requirements. But they might hinder growth in major oil-producing economies in the world at a time when Europe is still weak. A global economic slowdown may impact the export-driven Indian economy.
"The market is reacting to global worries, including lower price of oil," said Vaibhav Sanghavi, managing director of Ambit Investment, in a phone interview. "The yield on the 10-year U.S. Treasury note fell below 2 percent, which means investors are risk averse and fleeing to safety."
Energy companies fell the most. Reliance Industries Ltd. fell 2.7 percent, a 10-month low. Tata Motors' 3.4 percent fall was the most in last three months. ONGC and Hindalco stocks were also down.
"The sources of funds that invest in India are primarily sovereign wealth funds, pension funds and insurance funds. If Norway, Saudi Arabia, Abu Dhabi, Qatar, or Kuwait are not going to see surpluses, then they will have less capital to send out, which means capital flows into India will not be as strong as they were," said Neelkanth Mishra, managing director and India equity strategist at Credit Suisse.
Oil is unlikely to rise soon, because OPEC has declined to reduce production, while output from the United States, Russia and Iraq has risen.
The Sensex rallied 30 percent in 2014, the most among the world’s 20 biggest markets after China. The current bearish trend is a result of a slew of factors, and lower oil price is one of them. Investors are also apprehensive about the future of Greece, which might exit the eurozone, and whether Europe might start a full-scale government bond buying.