Indian equities fell Wednesday after negative cues from developed markets overnight and local concerns relating to India's fiscal situation and the rupee's weakness against peers.
In Mumbai, in afternoon trade, the Bombay Stock Exchange's benchmark index fell about 2%, or over 300 points, to test the key 16,000 level.
Investors remained nervous globally, pulling out from risk assets as debt-laden Greece appeared to be heading for fresh elections following the inconclusive results from polls held recently.
Most commodities, including even gold, fell across the board--the perceived safe haven was down 1.7% to $1,534 an ounce in international trading--as investors rushed to the safety of the U.S. dollar.
The U.S. dollar index, which tracks the greenback against a basket of six currencies, went above 80, its highest level for March.
The fall was particularly painful for Indian markets, which were among the best-performing ones globally for the first two months of the year, coming off a horrid 2011.
The rupee, which has exhibited weakness against the U.S. dollar, crumbled, falling to its all-time low of Rs 54.36.
India's current account deficit is expected to continue to remain under pressure as exports break down following concerns overseas and imports remain strong, said an Ambit Capital report, adding that the country's capital account surplus is unlikely to be able to fund the current-account deficit.
It also said moves by the central bank to cushion the rupee's fall may fail as the balance of payment situation worsens. "Given the fact that the size of the balance of payment is far more powerful driver of rupee movement than Reserve Bank of India's intervention, even if the RBI decides to intervene decisively to save the falling rupee, it is likely to skid lower as long as a negative BoP persists."
The Sensex is now only about 4% up for the year, even as it had climbed over 15% at a point in February.