The Sensex slumped 689 points and the Nifty closed 197 points lower amid profit booking by investors and lower Asian markets on rising tension between the US and China amid fears of a potential US government shutdown. US Federal Reserve's outlook on future rate hike path dampened investor sentiment.
While the Sensex slumped 689 points or 1.89% to 35,742, Nifty closed 197 points lower to 10,754. Of 30 Sensex stocks, 27 ended in the red.
"The equity market witnessed selling ahead of the weekend, mainly due to fears of lower global economic growth in the coming year - OECD forecasts put the growth rate lower at 3.70% against the 3.90% indicated earlier, and the growth estimates for China has been downgraded by international agencies from 6.60 % to 6.30% - lowest ever growth for China in a decade, both of which point towards a slowdown with far reaching implications for the financial markets. The markets came down by almost 1.83 % (Nifty) and 1.86 % (Sensex), and the broader market too came down, giving up quite a major chunk of the gains made in the last one week," said Joseph Thomas, Head Research at Emkay Wealth Management.
Top Sensex gainers were NTPC (1.07%), PowerGrid (0.43%) and Coal India (0.34%).
Wipro (4.23%) , Adani Ports (3.76% ) and Maruti (3.49%) were the top Sensex losers.
All BSE sectoral indices ended in the red. Top sectoral losers were banking stocks with the BSE bankex index falling 1.55% or 472 points and auto index losing 2.12% or 454 points. Consumer durables stocks also led the weakness in Indian markets with the BSE index falling 425 points or 2.04%
Bank Nifty fell 383 points to 26,890.
"Generally, we do see some profit booking towards the end of the year and this time, especially the last couple of days, we have seen Indian markets react to global news," said Anand James, chief market strategist at Geojit Financial Services. "This could add to some volatility but overall we expect Nifty to be rangebound between 10,700 and 11,200 in the short term."
Vinod Nair, Head of Research at Geojit said, "Concerns on global economy growth and threat of partial US government shutdown created headwinds to the domestic market. Rupee gave up some gains due to volatility in bond yields. However, fall in oil prices is expected to provide strength to rupee in the near term. Investors are using this opportunity to book profit after the recent rally, the market direction will turn positive as domestic economic indicators remain healthy."
Meanwhile, the mid cap and small cap indices closed 1.79% and 1% lower in trade today.
Market breadth was negative with 897 stocks closing higher compared to 1697 ending in the red on the BSE.
Jyoti Roy, Deputy Vice-President at Angel Broking said, "Indian equities are falling due to global markets. The Dow Jones has fallen by over 2,000 points from 25,980 on December 3. Indian equities have been bucking the global trend in the past few trading sessions. Therefore, today's fall is in sync with global markets. However, we are not really too much concerned over today's fall as there was bound to be some sort of a reaction post recent outperformance by the Indian markets."
On a net basis, foreign portfolio investors (FPIs) sold shares worth Rs 386.44 crore on Thursday, while domestic institutional investors (DIIs) were net buyers to the tune of Rs 87.96 crore, provisional data available with BSE showed.
"The Nifty 50 Index broke its long-term average of 10,767 with ease. The sentiments deteriorated on the back of weak and uncertain global cues. With lack of short-term positive triggers in the market, use rallies towards 10,950 and above to reduce long exposures. The next major event for the markets will be the quarterly results," said Arun Kumar, market strategist at Reliance Securities.
Domestic and other Asian stocks followed Wall Street that fell sharply after US President Donald Trump's demand for border wall funds pushed the federal government closer to a shutdown.
The White House said Trump will not travel to Florida Friday for the Christmas holiday if the government is shutting down. More than 8,00,000 federal workers will be facing furloughs or forced to work without pay if a resolution is not reached before funding expires at midnight Friday.
Meanwhile, China accused the US of fabricating facts after the US Justice Department indicted two hackers tied to Chinese security services who allegedly targeted companies and agencies in a dozen countries, adding fuel to the rift between the two countries, experts said.
The rupee, meanwhile, weakened against the US dollar, and was trading at 69.89 a dollar.
Brent crude, the international benchmark, was trading 0.66 per cent higher at $54.71 per barrel.
Global stocks fell further Friday after Wall Street slid on recession fears, putting markets in London, Frankfurt, Shanghai and Tokyo on track to end 2018 down more than 10 percent.
In early trading, Germany's DAX lost 0.5 percent and France's CAC 40 retreated 0.4 percent. Tokyo's Nikkei 225 index fell 1.6 percent and the Shanghai Composite Index ended down 0.8 percent.
The Chinese market is 2018's worst performer, down nearly 25 percent for the year.
Stocks usually end the year with a flourish. But investors worry global economic growth is cooling and the U.S. could slip into a recession in the next few years.
London's FTSE 100 gained 0.2 percent to 6,730.09 points, but is down 10.8 percent for the year.
Sydney's S&P-ASX 200 retreated 0.7 percent to 5,467.60 and Hong Kong's Hang Seng gave up 0.3 percent to 25,546.99.
Taiwan gained while New Zealand and Southeast Asia declined. Wall Street is headed for its worst December since the Great Depression.
Edited by Aseem Thapliyal