The BSE Sensex fell over 100 points or 0.5 per cent on Monday tracking weakness in global equities. The broader Nifty traded close to the key 6,050 levels, while the rupee was flat at 62.60 against the dollar.
The Sensex has fallen for five out of previous six sessions, marking a sharp turnaround since it posted a record closing high on January 23, on the back of a rout in emerging markets and the Reserve Bank of India's unexpected hike in interest rates on Tuesday.
The Federal Reserve's taper has led to fears that money will move out of emerging markets and into the United States for higher returns. Indian markets are dependent on foreign institutional investors for liquidity. Foreign institutional investors invested $20 billion in India last year, bought Indian shares worth a net $85.4 million in January, the smallest amount since they sold $902.5 million in August.
Banking stocks, which have faced the brunt of selling in recent days, were down 0.3 per cent as of 10.03 a.m. Other rate sensitives such as realty and auto also edged lower.
IT stocks, which have seen a lot of buying because they are delinked from the slowdown in the domestic economy, also saw selling pressure today. However, pharma stocks, considered to be defensive bets in a falling market, were up 1.4 per cent.
Lupin, which reports Q3 results today, led the advances on the Nifty, rising 1.9 per cent. Other drugmakers such as Dr Reddy's and Sun Pharma also saw between 1.5-2 per cent gains.
World stocks have been hit amid the turmoil in financial markets across several developing countries. Turkey and Argentina have been shaken recently by concerns that growth will slow and money will flow out of their economies as the US Federal Reserve tightens its monetary policy. That has knocked many stock markets, which were ripe for a pullback after big gains in 2013.
Japan's Nikkei benchmark was down 1.4 per cent as of 09.48 a.m. after Wall Street lost ground amid lingering jitters about weakness in the financial markets of some developing countries. Markets were closed in Hong Kong, China, Taiwan and Malaysia for Lunar New Year holidays. On Friday on Wall Street, the Dow Jones industrial average fell 149.76 points, or 0.9 percent, to 15,698.85.
(With inputs from agencies)