Snapping the rare gains of previous session, the S&P BSE Sensex ended the day 417 points lower after tumbling as much as 640.08 points on Wednesday to fall below its crucial psychological level of 24,000, while broader CNX Nifty breached its key 7,250-mark in intraday trade, but ended a tad above 7,300 level.
Both the headline indices have corrected 20 per cent from their all-time highs of 30,024 and 9,119, respectively, which they hit in March last year.
Stating that the economy is losing momentum, brokerage firm Ambit Capital had recently said the benchmark Sensex is yet to bottom out and can fall to 22,000 level in the "foreseeable future".
We have compiled five factors that dragged markets lower:
1) IMF cuts global growth forecast
International Monetary Fund on Tuesday cut its world economic growth forecasts for the third time in less than a year. The latest World Economic Outlook (WEO) update of the IMF said global growth for this year is seen at 3.4 per cent, up from a 3.1 per cent forecast for 2015, but 0.2 per cent lower than previously forecast.
"Risks to the global outlook remain tilted to the downside and relate to ongoing adjustments in the global economy: a generalised slowdown in emerging market economies, China's rebalancing, lower commodity prices, and the gradual exit from extraordinarily accommodative monetary conditions in the United States," said IMF.
"If these key challenges are not successfully managed, global growth could be derailed," it cautioned.
2) Muted December quarter earnings season
Third quarter earnings season is now running in full swings and hasn't been impressive so far with results of few bellwether companies like Infosys, TCS, Hindustan Unilever, Zee, IndusInd Bank already out. Expectations from this quarter were already low, but analysts believe Q3 may turn out to be worse than what Street expected.
India Ratings and Research believes that corporates will take at least two more years to report accelerated earnings and reach the peak level achieved in 2011-12. In a recent report brokerage firm Ambit Capital also predicted earnings growth to remain weak during FY2016 and FY2017.
"domestic demand environment continues to pose challenges with companies having limited pricing power and companies being forced to pass on fall in raw material prices to consumers to perk-up demand," said brokerage Prabhudas Liladhar also said in a recent report.
3) Rupee falls to 28-month lowThe domestic currency has fallen to lowest level since September 2013 at 67.95 against the dollar on Wednesday, triggering FII outflows. Foreign investors have sold shares worth Rs 6400 crore so far this month, the data on the BSE showed. Weakness in rupee hurts overall gains on existing investments.
4) Fall in oil prices
Crude futures slumped again in Asian trade on Wednesday, losing more than 2 per cent as US oil dropped towards $27 a barrel, its lowest since 2003, on worries about global oversupply.
That came after the International Energy Agency, which advises industrialised countries on energy policy, warned that oil markets could "drown in oversupply" in 2016.Brent futures dropped 49 cents to $28.27 a barrel after settling up 21 cents, or 0.7 per cent, in the previous session. The crude fell more than 2 per cent to $28.13 earlier on Wednesday, not far from the 12-year low hit on Monday.
5) China slowdown and stimulus policy
China's economy grew 6.9 per cent in 2015, the slowest pace in 25 years, slipping below the seven per cent mark and sparking concerns both at home and abroad over the continued slowdown in the world's second largest economy.
The growth rate, released by China's the National Bureau of Statistics (NBS) on Tuesday, moderated to 6.8 per cent for the fourth quarter, the lowest quarterly rate since the global financial crisis in 2009, and 6.9 per cent for 2015.
Now, the weak GDP data has strengthened market expectations the government will unveil more stimulus moves. China's central bank late Tuesday did reveal it would inject more than 600 billion yuan ($91.22 billion) into the banking system to help ease a liquidity squeeze expected before the Lunar New Year in early February.
However, investors believed such a move is usual before the holidays and stopped well short of an actual cut in bank reserve ratios.
(With inputs from Agencies)