MUMBAI — The potential threat of financial contagion effects on mounting concerns over the Chinese economy and global growth meltdown fears took its toll on the Indian market as well, triggering widespread panic sell-off and pulled down the flagship sensex sharply by over 700 points to close below the key psychologically significant 28,000 barrier.
The broader 50-share Nifty also tanked 219 points to end below 8,300 level.
Both the bellwether indices closed at their two-month lows.
Sharp erosion of rupee value in the midst of emerging market currency volatility aftermath of China's yuan devaluation and downgrading the country's GDP growth target to 7 percent by the rating agency Moody's mainly contributed towards grim market mood.
Widening trade deficit in the face of sluggish exports as well as lack of progress in GST Bill in the just-concluded monsoon session of Parliament and absence of any positive earnings surprise also added to the cloudy sentiment.
On the macro front, India's exports narrowed for the eighth straight month by 10.3 per cent in July to USD 23.13 billion, widening the trade deficit to USD 12.81 billion.
Earlier, on Tuesday global ratings agency revised its growth outlook to 7 per cent for the year, citing monsoon deficit worries and concerns over stalemate in the reform process.
Even though the market rallied on Wednesday, largely outperforming its Asian peers, it remained under intense selling pressure rest of the day.
However, the much-awaited clarity on their liability to pay MAT led some recovery towards the fag-end trade, but the damage was already done.
In a big relief to FIIs, government-appointed committee on MAT recommended that there was no case for imposing the controversial minimum alternate tax (MAT) on FIIs retrospectively, a suggestion that the government is said to be "favourably" considering.