Mumbai: A sense of anxiety prevailed in the market as the Sensex slumped 194 points ahead of the budget -- to be presented on Wednesday -- to a one-week low of 27,656 and the Nifty slipped below 8,600 after the Economic Survey projected a lower growth of 6.5 percent for 2016-17.
The recently introduced immigration restrictions by US President Donald trump and the new legislation that aims to rework the H1-B visa program dealt a blow to IT stocks, which saw a huge fall.
TCS, Wipro and Infosys came off by up to 4.47 percent, dragging down the BSE IT index by 2.96 percent, followed by technology that slumped 2.49 percent.
The Economic Survey for 2016-17, tabled in Parliament by finance minister Arun Jaitley on Tuesday, pegged the growth for this fiscal at 6.5 percent, lower than 7.1 percent put out by the Central Statistics Office earlier this month.
The Sensex closed down 193.60 points, or 0.70 percent, at 27,655.96 -- its lowest closing since January 24 when it settled at 27,375.58. It had lost 33 points in the previous session.
The broad-based NSE Nifty, which hit a low of 8,552.40 intra-day, managed to cut down losses and ended lower by 71.45 points, or 0.83 percent, at 8,561.30.
"The Economic Survey has given a cautious outlook for 2017-18 GDP growth, considering the risk of demonetization, subdued credit growth, rise in commodity prices and weaker external environment," said Vinod Nair, Head of Research, Geojit BNP Paribas Financial Services.
"IT stocks were the laggards today due to the policy effect on US H1B visa norms."
The risk-averse behavior was on display as participants took cues from global stocks that remained on the backfoot following Trump's controversial crackdown on immigration.
GAIL, Adani Ports, Sun Pharma, Tata Motors, Coal India, Lupin, Axis Bank and NTPC were among those that weighed on the benchmark indices.
Counters of oil and gas, PSU, healthcare, infrastructure and metal all turned weak, falling up to 1.64 percent.
Selling activity extended to the broader markets, with the BSE mid-cap retreating 1.10 percent and the small-cap 1.03 percent.
According to provisional figures, foreign investors bought shares worth Rs 607.36 crore yesterday.
There were a few that went up that cushioned the fall, which include ITC, PowerGrid, Bajaj Auto, ONGC and HDFC Bank.
In Asia, most markets were closed today for a holiday. Japan's Nikkei ended lower by 1.69 percent.
European shares, however, were trading higher as major indices in France, Germany and the UK moved up.
"This gives an alert that tomorrow's budget could also be a measured one," said Vinod Nair.
The US Fed rate decision on Wednesday ensured investors remained risk averse throughout the day.
The market breadth turned negative as 1,897 stocks ended lower, 828 closed higher while 220 ruled flat.
The total turnover on BSE read Rs 3,204.94 crore, higher than Rs 2,684.90 crore during the previous session.