The Sensex index plunged as much as 1,614 points from a six month high of 40,010.17 to fall below 39,000-mark. The NSE Nifty 50 benchmark touched an intraday low of 11,325.85 at the weakest level of the day, having risen to as high as 11,794.25.
The Sensex ended 839 points or 2.13 per cent to close at 38,628.29 and Nifty dropped 260 points or 2.23 per cent to close at 11,387.50.
Earlier in the day, both indices had staged gap-up openings as investors cheered the government's move to further ease the pandemic-related restrictions. However, the momentum was short-lived.
India is likely entering its deepest recession on record, which is expected to run through the second half of the fiscal year, as the rapid spread of the coronavirus pandemic continues to weigh on demand, hindering a pickup in business and economic activity.
In a major flare-up in Ladakh, Chinese troops "carried out provocative military movements to change the status quo" near Pangong Tso lake on Saturday night but they were blocked by Indian soldiers, the government said on Friday. The incidents took place overnight between August 29 and 30, according to a statement by the Army.
"Markets were overbought and at euphoric levels. Heightened geopolitical tensions between India and China after the Indian soldiers blocked Chinese troops near Pangong Tso lake and reports that India's economic growth will be worst among the G20 nations are spooking the investor sentiment," AK Prahakar, head of research at IDBI Capital, told media.
Selling pressure was visible across sectors as all the 19 sector gauges compiled by BSE ended lower led by the S&P BSE Realty index's nearly 5 per cent fall. Banking, auto, capital goods, power, metal, basic materials, pharma, oil & gas and telecom indexes also fell between 2-4.5 per cent.
Mid- and small-cap shares also witnessed selling pressure as the S&P BSE MidCap index dived 3.79 per cent and S&P BSE SmallCap index plunged 4.37 per cent.
Forty eight out of 50 shares in Nifty 50 index ended lower. Sun Pharma was top Nifty loser, the stock dropped 7 per cent to close at ₹ 515. State Bank of India, Cipla, Bajaj Finserv, Zee Entertainment, IndusInd Bank, NTPC, Eicher Motors, Bajaj Finance, Shree Cements, ICICI Bank, Kotak Mahindra Bank and Hindalco also fell between 4.5-6 per cent.
On the flipside, ONGC and TCS were among the notable gainers.
The overall market breadth was extremely poor as 2,329 shares closed lower while 536 ended higher on the BSE.
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