New Delhi: Indian shares plunged to a new five-month low in early Monday morning trading, on the back of a global sell-off as well as domestic factors such as the Kashmir issue, but managed to pare some of those losses by early afternoon.

While the 30-share Sensex plunged nearly 700 points and hit a low of 36,537.09 in early trading, it managed to recover slightly by afternoon.

US President Donald Trump’s decision last week to slap new tariffs on Chinese imports also sent the yuan below the psychological 7-per-dollar threshold.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.7%, while the Indian rupee hit its weakest level since mid-May at 70.49 rupee per dollar.

Domestic investor sentiment in Indian equities, which seemed to be upbeat on Friday after reports said the government was looking into foreign portfolio investors’ tax concerns, returned to bearish due to the escalating trade war between China and the US.

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The broader Nifty was down 1.62% at 10,819.55 as of 10:30 am, while the benchmark BSE Sensex was 1.55% lower at 36,537.09.

“A combination of global issues like US-China trade tensions and the political situation panning out in Kashmir is creating panic and keeping the markets nervous,” Deven Choksey, managing director of K.R. Choksey Investment Managers told NDTV.

By 12:54 pm, however, the Sensex had recovered slightly to 36,706.59.

“The economy is in doldrums and steps taken won’t give a boost in the short-term. The global economy is also doing much better than the domestic economy,” said Madhumita Ghosh, associate dean at Tasmac Global Solutions.

“We don’t see any trigger for markets to go up in the short term.”

Most sectors were trading in the red. The Nifty public sector bank index plummeted as much as 5.12%, while the metals index sank as much as 3.9%, their lowest in over three years. The Nifty autos index slithered down about 1.9%.

Nifty IT was the only index trading higher, boosted by the weak rupee.

The India volatility index shot up as much as 16.16%, its highest in over two months.

Yes Bank was the top loser among the Nifty stocks and fell about 6.7%, while Tata Motors was down 4.7%. Among the few gainers were Tata Consultancy Services, up 1.4%, and Infosys Ltd, which rose 0.5%.

“First, the Fed became the second major Central Bank (after ECB last week) to disappoint markets, as it delivered a less than dovish cut of 25 bp. To add to the woes, Trump announced another round of tariffs on the last remaining tranche of Chinese imports. China has already warned of retaliation and now all eyes will be on how China reciprocates, and everything else will likely take a backseat for now, in our view,” said Nomura Research, in a note.

(With inputs from Reuters)