The Sensex ended the day lower by 387 points, while the Nifty ended the day lower by 127 points, as investors were worried that liquidity withdrawal by the Federal Reserve would push stock prices lower.
Among the top losers in trade were Ranbaxy Laboratories, which shed 9 per cent, following reports that Japan's Daiichi Sankyo would seek legal remedies to sue ex-Ranbaxy promoters. State Bank of India lost more then 7 per cent, after the bank continued to report dismal numbers.
Other Nifty losers in trade were Jaiprakash Associates, Larsen & Toubro, DLF, Bhel and NMDC. Private sector banking names were also not spared with ICICI Bank, Axis Bank and HDFC Bank also dropping lower.
A few Nifty stocks that were gainers included IndusInd Bank, Ultratech cement, ONGC and Sun Pharma.
The Mid Cap index also saw a sharp slide with Adani Enterprises losing 6 per cent and HDIL and Unitech shedding 10 per cent each. The IT index which had initially gained ground also ended the day in the red.
Meanwhile, markets in Europe were trading sharply lower with the German DAX down 2.75 per cent, while the French CAC shed 2.5 per cent and the FTSE also lost 2 per cent. Most of Asia ended the day with losses.