MUMBAI (Reuters) - The BSE Sensex fell 1.5 percent on Monday to its lowest close in nearly 2-1/2 months as foreign investors continued to sell as part of a slump in emerging markets, hitting blue chips such as ICICI Bank.
Although India is seen in a better position than other countries such as Turkey due to its improved current account deficit and foreign exchange reserves, the country is being hit nonetheless.
Foreign institutional investors sold shares worth a net $93 million on Friday, taking the total sales to $523 million in six sessions, regulatory data showed.
Indian markets will thus continue to be beholden to global risk factors, including concerns about the Federal Reserve's withdrawal in monetary stimulus and an economic slowdown in China.
Fund investors worldwide pulled $6.4 billion out of emerging market stock funds in the week ended January 29, marking their biggest outflows since August 2011, data from a Bank of America Merrill Lynch report showed on Friday.
"I think this EM-led risk aversion could last till March-end. Probably after that the market would focus on the political alliances and upcoming elections," said G Chokkalingam, founder of research and fund advisory company Equinomics.
The benchmark BSE Sensex fell 1.48 percent, or 304.59 points, to 20,209.26, closing at its lowest since November 13.
The broader Nifty lost 1.44 percent, or 87.70 points, to 6,001.80, ending at its lowest since November 22.
Both indexes posted their sixth fall in seven sessions.
Shares weakened even as a survey on Monday showed Indian factories started 2014 on a high note, with activity growing at its fastest pace in nearly a year as domestic and overseas orders increased.
Blue chips, which are most vulnerable to foreign selling, led declines.
Wireless services providers fell on fears of heightened competition in the mobile spectrum auction.
Steelmakers fell on weak China factory Purchasing Managers' Index (PMI) numbers, which edged down to 50.5 in January from December's 51, the National Bureau of Statistics said on Saturday.
However, among stocks that gained, United Spirits Ltd (UNSP.NS) rose 3.2 percent after Relay B.V., an indirect wholly owned subsidiary of Diageo Plc (DGE.L), increased its stake in the company to 28.77 percent from 26.37 percent on Friday, exchange data showed.
Lupin Ltd (LUPN.NS) surged 4.5 percent after its December quarter profit grew by 42 percent to 4.76 billion rupees, beating analysts estimates.
Editing by Subhranshu Sahu