Weak cues from global markets amid rising coronavirus cases and a faltering rupee further sapped risk appetite, traders said.
The 30-share BSE Sensex, which opened on a strong note, came under heavy selling pressure in afternoon trade. It finally closed at 34,868.98, down 561.45 points, or 1.58 per cent.
Similarly, the NSE Nifty tumbled 165.70 points, or 1.58 per cent, to end at 10,305.30.
IndusInd Bank was the top laggard in the Sensex pack, tanking 7.43 per cent, followed by ICICI Bank, PowerGrid, Bajaj Finserv, Axis Bank and SBI.
On the other hand, Asian Paints, ITC, Nestle India, Tech Mahindra, Reliance Industries and TCS spurted up to 3.82 per cent.
"In spite of opening positive, markets finally ended negative, in sync with negative global cues. The rising cases of virus infections worldwide, especially in the Americas, unnerved the global markets. Domestic cases too show no signs of abating and this must be weighing on the investors.
"Almost all sectoral indices ended in the red, with the bank index the major loser. Ahead of F&O expiry (on Thursday), markets are expected to remain volatile and investors advised to keep booking profits," said Vinod Nair, Head of Research at Geojit Financial Services.
BSE bankex, telecom, finance, realty, power and healthcare indices plunged up to 4.08 per cent, while FMCG closed in the green.
Broader BSE mid-cap and small-cap indices dropped up to 1.24 per cent.
Global equities skidded on concerns over rising COVID-19 cases, even as economies are opening up.
Bourses in Hong Kong and Tokyo settled in the red, while Shanghai and Seoul ended with gains.
Stock exchanges in Paris, Frankfurt and London sank over 2 per cent in early deals following reports that the US may impose tariffs on certain imports from Europe.
International oil benchmark Brent crude futures fell 1.15 per cent to USD 42.14 per barrel.
On the currency front, the rupee erased its initial gains and provisionally settled lower by 6 paise at 75.72 against the US dollar.
The country saw the highest single-day jump of 15,968 COVID-19 cases and 465 fatalities, taking the infection tally to 4,56,183 and the death toll to 14,476 on Wednesday, health ministry data showed.
Worldwide, more than 9.2 million people have contracted the virus, with more than 477,000 fatalities. ANS ABM ABM