The Sensex dropped a huge 414 points lower in trade to end at 25480 points, while the Nifty fell 114 points in trade as foreign funds sold on global worries. The rupee dropped below the 61 levels for the first time since April 25.
Stocks that lost ground in trade and contributed to the sharp decline in the Sensex were HDFC and HDFC Bank. Among the other stocks that dropped from the Nifty were Sesa Sterlite, Sun Pharma, NTPC, Hindalco, Larsen and Jindal Steel.
However, shares in India's largest passenger car maker, Maruti rallied after the company managed to post robust sales numbers for the month of June. Other Nifty stocks that managed to end in the green were Hindustan Unilever, Bank of Baroda and Ultratech Cement.
Mid cap stocks also saw a pounding with stocks like Apollo Tyres, Havells India, IFCI, Jubilant Foods and Reliance Communications among the losers.
PSU banking stocks managed to stay firm with the likes of Bank of Baroda, Union Bank of India and Oriental Bank of Commerce ending the day with gains.
Meanwhile, markets in Europe were trading lower led by losses in the German DAX, French CAC and the UK's FTSE.