Share prices dropped further after data showed India's annual inflation rose to a three year high at 7 per cent, two whole percentage points higher than the RBI's comfort level. The wholesale prices index for the week to March 22 increased more than the market estimate of 6.62 per cent and the previous week's 6.68 per cent.
In response to the data, Commerce Minister Kamal Nath said the rise was primarily on account of supply side constraints.
The real worrisome factor in investors' minds is what the government is likely to do in order to tackle rising prices, analysts said. While fiscal measures have already been taken, there is fear that monetary steps, in the form of hiking the CRR hike could be taken as soon as today. Capital goods, technology, auto and banking shares were worst affected.
At 12:10 pm, the Sensex was down 373 points or 2.36 per cent at 15,459.12, the low point of the day.
BHEL (down 5.14%), HDFC (4.38%), Mahindra & Mahindra (3.64%), Larsen & Toubro (3.51%) and ITC (3.49%) were the biggest Sensex losers.
Ranbaxy Laboratories (up 3.14%), Tata Steel (0.65%) and Hindustan Unilever (0.45%) were the only index gainers.
The Nifty was down 96 points or 2.02 per cent at 4675.30, near the low of 4668.90.
Markets breadth showed 268 gainers and 902 losers on NSE. On BSE, 816 shares rose and 1548 fell.