Mumbai: India's stock markets fell nearly 2 per cent on Tuesday to their lowest in around a year on concerns that foreign investors would pare some of their holdings as China's equity markets continued to tumble.
India's volatility index, often called a fear gauge, was up 13 per cent after earlier hitting its highest level since May 2014 and traders expect additional gains ahead of the expiry of monthly derivatives contracts on Thursday. The gauge surged 64.4 per cent on Monday.
Despite fears foreign institutional investors (FIIs) would book some profits after a two-year rally in Indian shares, analysts say India could fare better than other emerging markets given optimism about the domestic economy and subdued inflation.
"We are not isolated from the global turmoil but the internal factors are not very bad for India and FIIs are selling because of global play," Alex Mathews head of research at Geojit BNP Paribas said.
The benchmark BSE Sensex was down 1.45 per cent at midday India time (0630 GMT) after earlier falling as much as 1.7 per cent to its lowest since August 8, 2014. The index had started the session with gains of as much as 1.5 per cent.
The broader Nifty was down 1.52 per cent after earlier hitting its lowest since August 12, 2014.
FIIs held about 25 percent of India's stock market capitalisation as of March, according to a report by investment bank Kotak.
All sectors were trading in the red with the exception of resources stocks. Pharma and IT stocks were the biggest drags on the index with Sun Pharma down 3 per cent, Lupin down 3.9 per cent, Infosys down 3.5 per cent and HCL Tech down 2.3 per cent.
Meanwhile, Coal India was up 2.7 per cent; BPCL and Cairn India gained 1.2 per cent each receiving a boost from the fall in crude oil prices.
