A global selloff driven by panic in the overseas bond markets on Friday ripped apart the renewed vigour in domestic equities as the Sensex plummeted around 1940 points to record its biggest single-day fall in almost 10 months, eroding investor wealth by over Rs 5.37 lakh crore.

The sea of red in stock prices came as US treasury bond yields breached 1.50 per cent on rising inflation fears. This has led to apprehensions that fund flows to emerging markets will be adversely affected as central banks could gradually withdraw their accommodative stance.

Other developments such as the US carrying out air strikes against Iran-based militia groups in Syria also spooked investors.

This came at a time investors were hesitant to build fresh positions ahead of the third-quarter GDP data release.

For the domestic markets, Friday’s crash comes when there was optimism of stock prices looking at their next leg of rally with the government set to undertake various reform measures and the economy in a revival mode.

However, there are others who point out that the times will be volatile as valuations are expensive and there are headwinds such as the rising number of Covid-19 cases in some parts of the country that could dent economic activities as some form of restrictions could be imposed by the authorities.

In Friday’s trading, the Sensex opened down at 50256.71 and continued to be under pressure as it hit a day’s low of 48890.48 — a fall of 2148.83 points. It later ended 1939.32 points, or 3.80 per cent, lower at 49099.99 — its worst one-day fall since May 4 last year.

The broader NSE Nifty plunged 568.20 points, or 3.76 per cent, to close at 14529.15 —– its biggest single-day drop since March 23 last year.

“The domestic markets gave in to a riot of selloff... a very rare thing in an otherwise booming market. US inflation is expected to rise in the coming months, and therefore, the US yields too. Rising inflationary expectations and the rising yields have a potential to adversely affect the equity sentiment and the equity markets’’, said Joseph Thomas, head of research, Emkay Wealth Management.

Provisional data from the bourses showed foreign portfolio investors sold a massive Rs 8,300 crore of stocks on Friday.

The rupee also posted its biggest single-day fall in nearly 19 months, tumbling 104 paise to close at 73.47 against the dollar.

According to Siddhartha Khemka, head-retail research, Motilal Oswal Financial Services, the markets may continue with its consolidation given the weak global cues.

“Investors would closely track bond yields, geopolitical tensions and inflation data for further market direction and would monitor developments around new US stimulus announcement. Even high valuations do not provide much comfort and thus correction was long overdue. Investors should take this opportunity to buy on dips while traders should be cautious with stock-specific action and book profits in regular intervals,’’ he said.