The S&P' downgrade threat came a day after the IMF slashed the country's growth forecasts for 2012 to 4.9 percent, dampening the sentiment further.
Mumbai: In knee-jerk reaction to S&P's rating downgrade threat, the Sensex on Wednesday nosedived by 162 points to close at 18,631.10 on across-the-board selling, particularly in power, banks and PSU shares.
Ratings major Standard & Poor's downgrade warning of "at least a one-in-three likelihood" of a downgrade of India's sovereign rating within the next 24 months comes a day after IMF slashed the country's growth forecasts for 2012 to 4.9 percent, dampening the fragile sentiment further.
After resuming over 100 points lower, the BSE benchmark index failed to stage a recovery amid fresh concerns over the sluggish global economic growth and Eurozone debt crisis.
Rupee also wilted under pressure and fell below 53-mark against the US dollar due to FII outflows, traders said.
"The S&P rating downgrade is speculative and probably a pressure tactic for more reforms. In any case, downgrades are not taken well," said Kishor P Ostwal, CMD, CNI Research Ltd.
With 27 stocks of the 30-share Sensex ending lower, the Sensex closed near day's lows at 18,631.10, down 162.26 points or 0.86 percent. Likewise, NSE Nifty fell below 5,700 level by losing 52.45 points, or 0.92 percent, to 5,652.15.
S&P analysts Takahira Ogawa and Elena Okorochenko today said factors forcing a downgrade would be a drop in growth prospects, deterioration on the external front, worsening of the political climate and slow movement on fiscal reforms.
SBI, which dropped 2.32 percent, was the biggest loser among Sensex. It was followed by Tata Power, Hindalco, BHEL, NTPERCENT and M&M. Wipro fell by 1.72 percent while Infosys fell 1.3 percent ahead of September quarter results on Friday.
Private lenders HDFC Bank and ICICI Bank dropped around one percent each. However, ITC, RIL and Hero MotoCorp bucked the negative trend.
Total market breadth was sharply weak as 1,929 stocks closed with losses while 978 finished with gains.
Barring FMCG index, the other 12 sectoral benchmarks today fell. Realty shares were hit hard after DLF tanked 5 percent.
Dealers said a weakening trend in the Asian region and lower opening in Europe also hit the domestic market trading.
Barring China, which closed with small gains, other Asian markets ended the day with losses following overnight fall on Wall Street on reports of brokerages downgrading stocks of Intel and other major companies as worries increased about third-quarter earnings.
Key indices from Hong Kong, Japan, Singapore, South Korea and Taiwan settled down between 0.08-1.98 percent.
European stocks were also quoting weak in the afternoon trade on global economic growth concerns. France's CAC was down by 0.42 percent, Germany's DAX by 0.38 percent and the UK's FTSE by 0.54 percent.
Back home among Sensex constituents, SBI dropped by 2.32 percent, followed by Tata Power (2.25 percent), Hindalco (2.11 percent), BHEL (2.04 percent), NTPERCENT (1.82 percent), M&M (1.75 percent), Wipro (1.71 percent), Jindal Steel (1.63 percent) and ONGC (1.57 percent).
"The mood was a little cautious as investors awaited the latest batch of quarterly earnings, IIP and inflation data, all of which are slated to be released over next few weeks. The market is also cautious before month-end policy meeting of the RBI," said Amar Ambani, Head of Research, IIFL.
GAIL India (1.44 percent), Sterlite Ind (1.42 percent), Infosys (1.29 percent), Bharti Airtel (1.28 percent), HDFC Bank (1.20 percent), Cipla (1.09 percent), HDFC (0.97 percent), ICICI Bank (0.97 percent) and L&T (0.95 percent) also figured among prominent losers.
Among sectoral indices, the BSE-Realty plunged by 4.61 percent, followed by BSE-Power (2.17 percent), BSE-Bankex (1.31 percent), BSE-PSU (1.30 percent) and BSE-CG (1.23 percent).
The total turnover was low at Rs 2,053.80 crore from Rs 2,351.59 crore yesterday.
Meanwhile, Foreign Institutional Investors (FIIs) bought shares worth a net Rs 613.98 crore on Tuesday (October 9) as per provisional data from the stock exchanges.