There was, however, some recovery, but the Nifty traded well below the key 5,300 level as of 11.25 a.m. Banking stocks led the decline on fears of foreign selling after rupee hit another record low.
The rupee weakened tracking the strength in the dollar index, which measures the greenback versus a basket of six currencies. The dollar index rose to 81.422, from a low of 80.896.
Fresh weakness in the rupee comes after minutes from the Federal Reserve's July policy meeting showed the U.S. central bank was on track to start tapering stimulus as early as next month.
Top officials of the Fed were mostly in agreement that the central bank should end its massive bond-buying program, which has been in place in one form or another since late 2008 to keep interest rates low and encourage economic growth.
The Reserve Bank of India has been unable to stem the rupee's selloff, despite intervention and curbs on outflows from companies and individuals, which have dented India's stock and bond markets. The government continues with incremental steps, banning duty-free import of flat-screen televisions.
The RBI's announcement on Tuesday to reverse its tightening strategy and start buying bonds has further confused traders.
--ANI (Posted on 22-08-2013)