Stock markets are finding the going tough. Key indices collapsed under the combined weight of weak global markets and domestic political uncertainties with the BSE Sensex hitting its lowest level in more than 15 months. The benchmark Sensex plunged 654 points or 4.91 per cent to close at 12,676.19 after touching the 15-month low of 12,605 in late trade.

Shares from banking, capital goods and metal sectors collapsed. Ranbaxy Labs plunged on high volumes for the second straight day. “The outlook for the market was weak. Global investors are pulling out money from equities due to high energy prices, high inflation and credit crunch. The investment destination is now the commodity segment like crude, gold and silver which are attracting a lot of new fund managers and investors,” said an analyst with Geojit Financial Services.

According to analysts, fears over the solvency of major Western banks rattled stocks in Asia and Europe after the US Federal Reserve and Treasury Department mounted a rescue plan to help support top mortgage lenders Fannie Mae and Freddie Mac following the sharp fall last week in their stock prices. On top of the troubles at Fannie and Freddie, two pillars of the US mortgage system, US regulators seized mortgage lender IndyMac Bancorp Inc late last week following withdrawals by panicked clients.

Political developments are making investors nervous. High fuel prices and inflation continue to torment the markets. “Given that the second round impact of domestic fuel price hike — in terms of rising input costs — is beginning to unfold and the surge in global oil prices continues, we expect the inflation to remain high till December,” stated Kaushal Sampat, COO, Dun & Bradstreet India.

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