The benchmark indices ended at one-month lows on Monday, as delayed monsoon and trade tensions between the US and India dampened investor sentiment. Falling for a fourth day, the Sensex ended at 38,960, down 491 points, or 1.25 per cent. The 50-share Nifty closed at 11,672, down 151 points, or 1.3 per cent - the most since June 3. Both indices ended at their lowest levels since May 23.
The late arrival of the monsoon has slowed crop sowing, stoking fears of a negative impact on the economy. The average rainfall in the first half of June is deficient by over 40 per cent. Meanwhile, New Delhi's decision to slap higher retaliatory tariffs on 28 US products triggered concerns that the ties between the nations might impact domestic companies that derive revenues from the world's largest economy.
"Indian markets are falling due to macro pressure. Liquidity crunch, trade war concerns and high valuations are weighing on sentiment," said Umesh Mehta, head of research, Samco Securities.
Overseas investors sold shares worth Rs 239 crore on Monday, while domestic investors were buyers to the tune of Rs 376 crore, provisional data provided by the stock exchanges showed. Foreign investors have been taking money off the table in the past few trading sessions, weighing on the performance of the market.
"The market has been finding it difficult to sustain at elevated levels on the back of muted corporate earnings, slow monsoon season, continuous corporate defaults, and developing concerns of India-US trade disagreements," said Jagannadham Thunuguntla, head of research, Centrum Wealth.
Market players said the Street was eyeing Finance Minister Nirmala Sitharaman's first Union Budget, which will be presented on July 5. They said investors were hoping that the government would take steps to shore up economic growth. The GDP growth rate for the January-March quarter was the slowest in five years.
"Now a lot depends on the Union Budget. The markets will welcome the Budget if it offers any fiscal respite to stimulate the economy, as the monetary policy could not rekindle the economy due to the lack of transmission," said Thunuguntla.
All the 19 sectoral indices of the BSE ended with losses, with the BSE Metal index dropping the most. All the Sensex components, besides three, ended with losses. Tata Steel and Vendata fell the most at 5.7 per cent and 3.3 per cent, respectively. Reliance Industries was the biggest drag on the Sensex, pulling the index down 113 points. The NSE Mid-cap 100 and the NSE Small-cap 100 index fell 1.2 per cent and 1.6 per cent, respectively.
The India VIX, a gauge for market sentiment, shot up 5.4 per cent amid investor caution.