The Sensex ended the day sharply lower dropping by 211 points, while the Nifty shed 68 points. High beta names including those in metals and infrastructure plunged.
Metal stocks were the hardest hit with Hindalco, Sterlite, Sesa Goa and Jindal Steel plunging. Infrastructure stocks too followed with Larsen, JP Associates and Bhel also declining.
Software stocks managed to hold ground with Infosys and TCS both gaining after the rupee dropped beyond the 55 levels.
Heavyweights, Reliance Industries and ITC failed to provide support to the market dropping marginally.
Banking stocks also fell with ICICI Bank, State Bank of India and PNB amongst the losers. PSU banks which had rallied sharply in trade in the last few sessions ended the day with losses. PSU banks that lost ground were Andhra Bank, Allahabad bank, IDBI Bank, Oriental Bank and Syndicate Bank.
Among non index stocks Kingfisher Airlines showed strength despite reports that no headway had been made between Kingfisher and Etihad for a proposed deal.
Meanwhile, the stock of Bombay Dyeing and Aarti Drugs hit a 52-week high today on sustained buying.
Brokers say there was FII selling pressure and squaring off, due to uncertainty over the fiscal cliff in the US, which dampened sentiments.
Markets are expected to be volatile and next week would be crucial should there be no resolution to the fiscal cliff in the US.