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.

India-dedicated funds saw $944 million outflows in the month to July 9, 2008, the highest redemption faced by any country-specific funds group in the period, according to EPFR Global data. Redemptions have continued for five weeks in a row leading the Indian benchmark indices to their lowest levels in 15 months.