Shares in India's Reliance Power sank as much as 21 percent in a chaotic debut on Monday as valuation concerns and global market turmoil dented investor demand following its $3 billion IPO, the country's largest.

Bombay Stock Exchange's benchmark index fell 4.8 percent in a day of volatile trade. The Sensex fell 834 points to 16,631 at the close, dragged down by losses in blue chips. The index dropped as much as 5.7 percent during the session.

On the broader National Stock Exchange, the 50-company S&P Nifty index dropped 5.1 percent to 4,857 points.

The poor start for Reliance Power that had initially been expected to double was a further setback for India's record pipeline of IPOs this year.

Two offerings, including a $1.6 billion one from Emaar MGF Land, were shelved last week after a tepid response triggered by the global credit crunch and US recession worries.

"It will definitely hit investor sentiment in other IPOs as new entrants in the market will think several times before pricing their offer aggressively," said D.D. Sharma, vice president at Anand Rathi Securities.

Reliance Power, controlled by billionaire Anil Ambani, sold out within a minute last month when it opened its record IPO to finance the building of power plants across India.

The offer for around a tenth of the company was priced at 450 rupees ($11.4) a share, the top of range, and the $3 billion raised made it the world's biggest offering so far in 2008, according to Thomson Financial.

Analysts first expected Reliance to touch 900 rupees when it began trading, but stock market turmoil lowered investor risk appetite and analysts subsequently said a start of 75-150 rupees above the IPO price was more realistic.

But after rising briefly to 599.90 rupees, the shares dropped to a low of 355.05 rupees and closed down 17.2 percent at 372.50 rupees. The benchmark index ended nearly 5 percent lower.

Reliance Power was the top traded stock on the Bombay exchange with nearly 64 million shares changing hands. Shares in Reliance Energy, which holds 45 percent of Reliance Power, fell as much as 22 percent and ended 19.4 percent lower at 1,582.30 rupees.

Chairman Anil Ambani rang the bell at the Bombay Stock Exchange for the start of trade on Monday, saying: "I'm confident our long-term investors will reap rich rewards by investing in the company."    

The issue, managed by Kotak Mahindra Capital Co, UBS, ABN AMRO, Deutsche Equities, Enam Securities, ICICI Securities, JM Financial and JPMorgan, had been helped by the Ambani family name.

There are no forecasts for the company as it does not have any operational assets, but plans to set up about 28,000 megawatts of power projects.

The utility saw its IPO subscribed 73 times, even though analysts said it was unlikely to report strong profits for five years. The 450 rupee offer price valued it at $30 billion.

But since the offer closed, market conditions have deteriorated and the benchmark index has lost about 22 percent from an all-time high of 21,206.77 hit on January 10.

Analysts said Reliance Power had been overpriced relative to India's top power producer NTPC Ltd, which is valued at more than $42 billion and trades at more than 21 times forward earnings.

"In this kind of a market you are better off investing in companies based on their earnings potential than in those whose valuations depend on their future stock movements," said Nilesh Jasani, head of research at Credit Suisse.

Warning signs came last week when Wockhardt Hospitals Ltd and then Emaar MGF, the Indian joint venture of Dubai's Emaar Properties, pulled their IPOs due to poor response and worries the shares would fall on their debuts.

Until then, India had a record IPO pipeline of $15.8 billion for 2008, according to Thomson Financial. Government-run State Bank of India plans a $