MUMBAI: The Nifty underperformed global peers and closed below the important support levels as GAAR and tax concerns, a weak rupee, the government's inaction toward reforms and the uncertainty in global markets hurt sentiment. All major sectoral indices, barring the pharmaceutical sector, ended in the red with capital goods, banks, metals and realty stocks leading the decline.
The indices opened in the red, taking cues from weak Asian peers and a depreciating rupee. The rupee has been on the decline for the past few sessions in the absence of foreign inflows and demand from oil importers in the wake of consistently high international crude oil prices.
The partially convertible rupee was trading at 53.71, down 30 paise, against its previous close of 53.41. It breached the resistance of 53.50 per dollar and threatened to slip below 54 per dollar in early trade touching an intraday low of 53.92. Analysts say the rupee can slip to 55-56 if the government doesn't take adequate measures.
Foreign institutional investors have been exiting Indian markets over the lack of clarity on GAAR and new tax provisions announced during the Union Budget in March. The Street is hoping to get some clarity on these issues next week when the Finance Bill is passed in Parliament.
Meanwhile, comments from S.S. Palanimanickam, the Minister of State for Finance, in the afternoon that India was considering a review of the Double Taxation Avoidance Treaty with Mauritius to raise revenues led to panic selling in the market.
Traders were also wary of carrying open positions ahead of the weekend due to the uncertainty in the global markets. The US jobs data will be out today and there are elections in eurozone nations over the weekend.
The Nifty closed at 5,086.85, down 101.55 points, or 1.96 percent. It touched an intraday high of 5,177.20 and a low of 5,070.60.
The Sensex ended at 16,831.08, down 320.11 points, or 1.87 percent. It touched an intraday high of 17,121.37 and a low of 16,776.72.
"The Nifty broke the 200 daily SMA at 5117 levels in its third attempt. The first two attempts on the average resulted in a pull-back of 3-4 percent. These pull-backs resulted in formations of lower highs on the index, a pattern which is a bearish setup in technical terms.
We are near the psychological level of 5,000 where the index can stall for some time but the trend has weakened and further lows to 4,950 cannot be ruled out. The next major support is at 5,080 and 4,950 levels which are Fibonacci retracement levels.