The domestic equity benchmarks posted their worst day in over six months on Thursday after Morgan Stanley's downgrade of Indian equities along with below-than-anticipated September quarter corporate earnings, continuous selling of Indian equities by foreign institutional investors amid heightened volatility due to monthly expiry of October future and option contracts dented investors' sentiment, analysts said. The Sensex fell as much as 1,366 points and Nifty 50 index dropped below its important psychological level of 17,800, falling as much as 411 points.
The Sensex dropped 1,159 points or 1.89 per cent to close at 59,985 and Nifty 50 index tumbled 354 points or 1.94 per cent to close at 17,857.
Morgan Stanley downgraded Indian equities to equal-weight from overweight on Thursday due to expensive valuations, and said it expects the market to consolidate ahead of potential "short-term headwinds".
Foreign portfolio investors have so far sold shares worth Rs 9,295.78 crore in Indian markets, data from National Securities Depository Limited (NSDL) showed.
"FIIs turning net sellers and disappointing corporate results with rising sales and declining profitability due to high raw material cost is leading some correction in markets," AK Prabhakar, head of research at IDBI Capital told NDTV over phone.
Selling pressure was so intense that all the 15 sector gauges compiled by the National Stock Exchange ended lower with the gauge of state-run lenders - Nifty PSU Bank index dropping over 5 per cent. Nifty Bank, Financial Services, FMCG, IT, Media, Metal, Pharma, Realty and Oil & Gas indices falling between 2-3.5 per cent.
Mid- and small-cap shares also faced selling pressure as Nifty Midcap 100 index dropped 1.96 per cent and Nifty Smallcap 100 index declined 1.85 per cent.
Coal India was top Nifty loser, the stock fell 3.72 per cent to close at Rs 167. Axis Bank, Cipla, Tata Motors, HDFC Bank, State Bank of India, Titan, NTPC, Hindalco, Tech Mahindra, JSW Steel, Eicher Motors and Wipro also fell between 2-3.6 per cent.
On the flipside, IndusInd Bank and Larsen & Toubro were among the top Nifty gainers after they reported better-than-expected September quarter earnings. UltraTech Cement, Asian Paints, Shree Cement and Maruti Suzuki were also among the notable gainers.
The overall market breadth was extremely negative as 2,295 shares ended lower while 985 closed higher on the BSE.