Mumbai, May 11 (IANS): Key Indian indices plunged on Wednesday as an amended tax treaty with Mauritius spooked investors at the prospects of a massive outflow of foreign capital from the equity markets.

Consequently, the key indices of the Indian equity markets traded deep in the red during the mid-afternoon trade session.

The wider 51-scrip Nifty of the National Stock Exchange (NSE) edged lower by 39 points or 0.49 percent, at 7,848.80 points.

The barometer 30-scrip sensitive index (Sensex) of the BSE, which opened at 25,548.97 points, traded at 25,602.69 points (at 2.00 p.m.) -- down 169.84 points or 0.66 percent from the previous close at 25,772.53 points.

The Sensex has so far touched a high of 25,762.49 points and a low of 25,409.24 points during the intra-day trade.

The BSE market breadth was skewed in favour of the bears -- with 1,496 declines and 934 advances.

Initially during the day's trade, the equity markets opened on a negative note, as investors were spooked after the government on Tuesday announced amendments to the DTAA (Double Taxation Avoidance Agreement) with Mauritius. 

The amended DTAA has increased the potential of a massive outflow of foreign funds from the equity markets. Mauritius is a major source of foreign investments into the Indian equity markets.

Besides, investors were seen cautious ahead of the release of key domestic macro-economic data such as CPI (Consumer Price Index) and IIP (Index of Industrial Production). 

In addition, upcoming quarterly results from the banking sector and negative European markets stroked volatility.

However, markets pared some of its losses on the back of value buying after the initial correction. 

"The potential of FIIs' outflows from India due to the amendment of the tax treaty with Mauritius spooked investors," Anand James, chief market strategist, Geojit BNP Paribas Financial Services, told IANS. 

"Investors were seen cautious ahead of the release of banks' fourth quarter results and the key-macro economic data."