Fresh fears over the impact of retrospective taxation rattled foreign investors and Indian markets on Monday, traders said, as stocks fell for a fourth consecutive day and the rupee hit its weakest in more than a month.

The rupee fell 55 paise to 62.91 to the dollar due to heavy capital outflows and fresh dollar demand from banks and importers. The rupee had closed at 62.36 against the US currency on Friday.

The currency posted its biggest intraday fall since December 16.

The Indian currency opened lower at 62.55 due to weaker opening in the domestic equity markets.

Weak trade data for March also weighed on the rupee. Trade data for March showed that trade deficit had widened to a four-month high in March. The increase in the deficit was mainly because of a 93.9 per cent rise in gold imports to $4.98 billion in March.

The rupee moved between 62.49 and 62.92 in intra-day trade.

There was some talk that state-owned banks had sold dollars on behalf of the central bank to cap the rupee's fall around 62.90 levels, three traders said on Monday

The Sensex plunged 555.89 points or 1.95 per cent to 27,886.21 and the NSE index tanked 157.90 points or 1.83 per cent at 8,448.10, marking their steepest single-day decline since March 26.

Broad global dollar strength also added to the fall in the Indian currency.

While Prime Minister Narendra Modi's government had said it would move towards a tax-friendly regime to boost much needed foreign investment in India, media reports over the weekend said tax authorities have sent fresh notices to some companies including Vodafone Group.

Funds themselves are already fretting over unexpected tax bills, as asset managers receive demands for minimum alternative tax (MAT) - a form of corporate taxation on profits.

"There are funds which have received tax notices from the government. Who would bear the cost - asset managers or investors?" a fund manager with a foreign bank told Reuters.

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