Benchmark indices ended the day sharply lower, as weak China data saw indices in that country plunge, forcing the authorities to close trading for the day.
A near 7 per cent cut in the Shanghai Composite also led to a major sell-off across Asian and European markets.
Most of the Asian indices saw cuts of 2 per cent, while European indices like the German DAX and French CAC saw cuts of near 3 per cent.
The Sensex ended the day with losses of 537 points, while the Nifty fell 171 points in trade. Tata Motors was the biggest loser in trade. The stock ended the day lower by 5 per cent, as China is the biggest market for Tata Motors.
Bharti Airtel and Hindalco were the other stocks that lost ground. Reliance Industries, which has been lending support to the markets in the last few weeks fell more than 2 per cent, along with another heavyweight HDFC.
Hindustan Unilever and NTPC were the only index stocks that managed to show some resilience in a falling market.
Banking stocks also saw deep cuts with PSU banking stocks being the worst hit. Bank of Baroda and Oriental Bank of Commerce both fell 5 per cent each, while Syndicate Bank dropped 4 per cent.
Mid cap stocks, which were steady in trade in early morning, failed to hold ground and fell in line with the index. Adani Power, Havells, DHFL and JP Associates were the biggest losers from the space.
Meanwhile, the rupee was trading weak at 66.46 to the US Dollar.