Mumbai: Snapping four days of gains, the BSE benchmark Sensex on Friday tumbled 240.10 points from record high to close at one-week low of 21,133.5 after RBI Governor Raghuram Rajan's comments on inflation dashed hopes of a rate cut in next week's monetary policy review.
A plunge in rupee value also hit investor sentiment. Traders also said weak global cues due to poor Chinese manufacturing data put pressure on markets.
The 30-share barometer resumed weak and was in the negative territory for the entire day.
The key index settled at 21,133.56, a fall of 240.10 points or 1.12 percent, recording the biggest drop in more than three weeks. On January 2, it declined 252 points.
Jignesh Chaudhary, Head Of Research, Veracity Broking Services said: "Equity markets traded in the red today after closing at an all time high yesterday eroding maximum of their gains accumulated over the last four trading sessions."
In the previous 4 days, the bellwether index had gained 310 points to set new closing peaks on rate cut hopes after wholesale and retail inflation softened. The barometer rose by 87 points to close at all-time high of 21,337.67 yesterday.
Brokers said Rajan's comment that inflation was a "destructive disease" killed rate cut hopes. Rupee weakness also added to worries of investors who pressed the selling button, they added.
BHEL at 3.39 percent was the biggest Sensex loser, followed by Tata Steel at 3.26 percent. Tata Motors was down 3.26 percent and Sesa Sterlite 2.92 percent.
SBI, ICICI Bank and HDFC lost 2.12 percent, 1.96 percent and 1.31 percent, respectively. Martui Suzuki (1.25 percent), Cipla (1.08 percent) and Sun Pharma (1 percent) were other big losers.
All the 12 sectoral indices closed with losses in the range of 0.28 percent and 3.19 percent. Interest rate sensitive realty, banking and auto ended lower by 3.19 percent, banking 1.88 percent and auto 1.57 percent in that order.
The NSE 50-share Nifty dropped by 78.90 points or 1.24 percent to finish at 6,266.75.
"Inflation is a destructive disease. Industrialists complain about high interest rate but we don't have a choice but to keep interest at high rate because inflation is high at 8 percent," Rajan had said in the 8th R N Kao Memorial Lecture organised by Research and Analysis Wing (RAW) in New Delhi yesterday.
An RBI expert panel has also recommended that the central bank should start consumer price inflation target to determine the monetary policy.
The Reserve Bank of India's (RBI) monetary policy review is scheduled for January 28.
Pharma major Ranbaxy closed sharply down by 19.54 percent on BSE after the USFDA prohibited the company from producing and distributing drugs for the American market from its Toansa plant in Punjab.
On global front, most Asian stocks ended in the red tracking overnight losses in the US. Key benchmark indices in Hong Kong, Japan, South Korea and Singapore ended lower in the range of 0.36 percent and 1.94 percent, while indices in China and Taiwan moved up by 0.04 percent to 0.60 percent.
European markets were also trading lower as key indices in France, Germany and UK eased by 0.23 percent to 0.53 percent.
The market breadth remained negative as 1,759 stocks ended in red, while 890 finished in green.
Meanwhile, foreign institutional investors (FIIs) bought net Rs 469.90 crores yesterday, as per Sebi data.
