Indian stocks have plummeted to their lowest level this year after a spectacular two-year rally. The decline in Indian markets came as markets across Asia continued to slide.
Within five minutes of markets opening on Tuesday, Bombay's Sensex sank below the 9,000 mark, its lowest level in the last six months. It recovered slightly, but ended by losing more almost 4.4 percent for the day.
Foreign funds have pulled nearly $3 billion out of Indian stocks since the Sensex began tumbling last month.
Indian stocks have been among the worst hit since Asian and emerging markets began to slide due to fears of a slowdown in the world economy and rising interest rates in the United States. The Sensex has lost nearly 30 percent of its value after hitting a record 12,671 points in May.
The chief economist at ABN Amro Bank in India, Abheek Barua, says that is because Indian stocks had run up much faster than the other markets.
"The valuations were seen to be far more stretched [higher] in Indian markets than in other emerging markets, consequently, when jitters sent in, the Indian markets suffered more than the others," said Barua.
The mood was glum across Asia where worries about inflation and rising interest rates in the U.S. have triggered fears that American consumers will spend less on Asian exports. In addition, when interest rates rise, many investors pull money out of stocks to invest in bonds and bank deposits, which are considered less risky than share markets.
In Japan, the main share index plunged more than four percent, the Nikkei's biggest one-day fall in the past two years. South Korea's leading index tumbled 2.9 percent. Hong Kong's Hang Seng index dropped nearly 2.5 percent, and in Singapore the index fell by almost two percent.
ABN Amro Bank's Abheek Barua says markets in the region could continue to see some rough times ahead even though economic fundamentals in most Asian countries remain strong.
"The long-term Asia story remains positive and I think Asia will be the primary attracter of capital in a five-to-10 year horizon, but stock markets tend to be focused a little more on short-term, so there could be fairly volatile cycles in the stock markets," added Barua.
In India, analysts expressed hope that the stock markets will eventually stabilize, and the country's booming economy will lure investors back.
"As far as the economy is concerned we have had only positive news month after month," said said Prithvi Haldea, who is with the research house Prime Database in New Delhi. "I think at some level, whether it is 9,000 [to] 8,500, the market will become attractive, and therefore I see institutional investors both within India and abroad looking at the market all over again."
Financial analysts predict that markets across the region, as well as elsewhere in the world, may continue to see more losses in the coming weeks.