Benchmark indices came crashing down just as investors felt that India was fairly insulated from events abroad and had shown remarkable resilience in the last few days.
The Sensex fell 483 points, as investors sold into banking and tech stocks after Chinese Markets crashed almost 6 per cent and the Hong Kong Market followed with a 5 per cent drop.
Shares in metal companies and Tata Motors, which are directly impacted by problems in China fell sharply after Chinese stocks crashed, raising worries over demand.
The largest market for Jaguar Land Rover owned by Tata Motors is China and the sudden collapse in markets there raised worries over demand in China.
Tata Motors was down a huge 6 per cent in trade. Metal stocks also melted as investors fretted over demand from China.
Vedanta was down 9 per cent, Hindalco was down 6 per cent and Tata Steel slumped 4 per cent. Both the stocks touched a new 52-week low on the National Stock Exchange.
Check the day's top gainers and losers here
IT Stocks also fell a day ahead of results from tech major TCS, due later on Thursday. Infosys and Tech Mahindra were the biggest losers from the space.
Meanwhile, European markets were trading with gains on hopes that a deal would be sealed with Greece and its creditors latest by Monday. The German DAX, French CAC and the UK's FTSE were all higher in trade.