Benchmark share indices ended over 1% down on Thursday dragged by rate-sensitive shares after high May inflation at 7.55%, which remained above the RBI's comfort zone, dashed hopes of a dovish stance by the central bank on key policy rates.
The 30-share Sensex ended at 16,678 down 203 points or 1.2% and the 50-share Nifty ended at 5,055 down by 67 points or 1.3%. The Sensex and the Nifty touched an intra-day low of 16,659 levels and 5,048 mark, respectively.
India's wholesale price index (WPI) rose 7.55% in May from a year earlier, driven by double-digit rises in food and fuel prices, government data showed on Thursday.
Finance Minister Pranab Mukherjee said he is "confident" headline inflation would remain between 6.5-7.5% throughout the fiscal year 2012-13.
Meanwhile, the country's exports fell 4.16% year-on-year to $25.7 billion in May, a senior trade ministry official told reporters on Thursday, citing provisional data that showed the trade deficit widening over the previous month.
On the global front, Japan's Nikkei share average dipped on Thursday as investors continued to cut their exposure to risky assets, hedging against the potentially disruptive consequences of Greece's election at the weekend and Federal Reserve and G20 meetings next week.
Spain's 10-year bond yields hit a euro-era record of 7% on Wednesday as investors fled to safe-haven assets on fears the storm surrounding Europe's two-year long debt crisis was worsening, sending European shares and the euro lower. CAC, DAX and FTSE have declined by almost 1% each.
Meanwhile, the rupee recovered its initial loss this morning and was trading at 55.82 per dollar due to uneven demand and supply of the American currency from banks and corporates. The rupee resumed weaker at 55.75 per dollar as against the last closing level of 55.68 at the Interbank Foreign Exchange (Forex) market.
On the sectoral front, BSE Realty, Bankex, Capital Goods, Auto and Power indices slumped between 2-3%. Sectors like Consumer Durable, PSU, Metal, Healthcare and Oil & Gas tumbled between 0.2-1%. However, BSE IT index ended marginally positive.
Shares of frontline banking and financial shares such as State Bank of India (SBI), ICICI Bank, HDFC Bank and HDFC dipped between 1-4% after the May inflation numbers came higher as compared to previous month have seen little hope for Central Bank to cut key policy rates in its mid-quarterly policy review next week.
Moreover, Punjab National Bank (PNB), Axis Bank, Canara Bank and Bank of Baroda (BoB) ended 2-4% down on turning ex-dividend today.
From the capital goods space, Larsen and Toubro (L&T) dipped 4% to Rs 1,297 after surging 19% in past eight trading days on the Bombay Stock Exchange. BHEL slipped by over 1.5%.
Among Auto segment, Tata Motors was the top Sensex loser, down nearly 5%. Maruti Suzuki and Bajaj Auto slipped between 1-2%. Auto shares extended yesterday's losses on reports that the government may impose a special tax on diesel cars. According to media reports, the government plans to impose additional levies of 170,000 rupees on small diesel cars and 255,000 rupees on medium and large diesel vehicles such as sedans and SUVs
Amongst Power sector, NTPC declined 4% followed by Tata Power, declining by 2%.
Other notable losers included Hindalco, JSPL, Sun Pharma, Tata Steel, GAIL India and Dr Reddy's Lab.
On the winning side, Infosys and Cipla gained between 0.6-1%.
Colgate-Palmolive (India) ended higher by 2% on reports that the oral and dental hygiene products manufacturer has begun construction work at its upcoming plant site in Sanand, Gujarat with an investment of Rs 200 crore.
Henkel India surged over 13.4% to Rs 28 after the company said that their board will meet on June 15 to consider the proposal of amalgamation of the company with Jyothi Laboratories.
Moser Baer India ended higher by 2.3% at Rs 9.31 after the company said it is looking to restructure foreign currency convertible bonds (FCCBs) worth $150 million, maturing this month.
The broader indices too witnessed selling pressure BSE Midcap and Smallcap indices ended lower between 0.7-1.3%.
The market breadth in BSE ended unhealthy with 1,701 declining and 1,011 shares advancing.