BSE Sensex plunges 654 points to close below 13K; Financial stocks drag on subprime woes

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All the sectoral indices closed in the red, the biggest losers being Bankex (down 7.75 percent), Realty (down 5.44 percent), Consumer Goods (down 5.25 percent) and Metal (down 5.21 percent).

The BSE Midcap and Smallcap indexes ended down 3.14 percent and 3.15 percent at 5163.51 and 6430.90 respectively.

The market breadth was overall negative as 2105 shares declined, 535 shares advanced and 57 shares remained unchanged.

Elsewhere, the broader 50-share S&P CNX Nifty index of the National Stock Exchange (NSE) dived 4.42 percent or 178.60 points to close below 4000 level at 3861.10.

The index touched an intraday high of 4040.70 and a low of 3835.50 respectively.

According to Arun Kejriwal, director of research firm KRIS, the Indian investors were unduly worried about the global credit turmoil. "Where is the large-scale loan default in the domestic market that can affect the Indian banking sector? It's only sentiment, there's no logic behind this kind of a sell-off in bank stocks," he said.

However, K.K. Mital, head of portfolio management services at Delhi-based Globe Capital, warned that worse is yet to come. "I don't see any positive trigger that can dilute the flow of negative news," Mital said.

"More downside certainly can't be ruled out," he added.

Even as global crude prices hovered around $144 on Monday, Iranian President Mahmoud Ahmadinejad warned that crude prices could go up higher for various reasons, including threats to attack his country to curb its nuclear program.

Fitch Ratings also lowered India's domestic rating outlook from stable to negative on Tuesday, citing the central government's "considerable deterioration" in fiscal position. This has led domestic investors to fear that foreign funds might find Indian markets less attractive.

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