The benchmark 30-stock index — the Sensex — closed below the 18,000 mark for the first time in six months on Tuesday as high inflation continued to spook investors. After opening in the black, the index soon started its downward descent.

Opening at 18,141 (which is also its intraday high), the Sensex dropped to a low of 17,742 in intra-day trading. It closed at 17,775, losing 261 points or 1.45 per cent below Monday's close. Just 551 shares advanced on the BSE, while 2,299 declined.

The Nifty shed 1.55 per cent to end the day at 5,313 on Tuesday.

“Investors' confidence has been shaken. Though nothing has changed fundamentally in the domestic markets, there are worries regarding the Government's ability to take care of certain macro-economic issues,” said Mr K. Jayraman, Research Associate, Bonanza Portfolio.

The Sensex has plummeted more than 14 per cent since January 2011. On the BSE, the traded quantity has dropped 45 per cent and the total turnover is down 34 per cent during this period.

Foreign institutional investors have been net sellers of equity worth Rs 10,130 crore since January. On Tuesday, their net sales added up to Rs 726 crore. Domestic institutions bought shares aggregating Rs 449 crore (net). Retail investors continued to pick up shares at lower levels, with their net purchases totalling Rs 10 crore.

Global cues, too, remained mostly negative. The MSCI Asia index, the FTSE, CAC and DAX all were trading in the red.

A Nomura research report on Tuesday said that they are cautious on Indian equities despite the recent market decline.

“Based on what we have seen in the 3Q FY11 (the December quarter) earnings season so far, we maintain our view that FY12F consensus earnings growth is too optimistic and downgrades have further to go.”

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