The BSE S&P Sensex closed 504 points or 1.3 per cent lower at 38,594 while the Nifty 50 wound up 157 points lower at 11,431. At the National Stock Exchange, all sectoral indices except for IT were in the red.
Equity indices extended losses in the afternoon as the fresh scam of lending problem in PMC Bank dented market sentiment. Investors also worried about the revival of auto demand despite deep cuts in corporate taxes.
Stocks like banking, financials and auto, which had rallied the most after September 20 corporate tax announcements, continued to see selling pressure on profit booking.
Nifty PSU Bank tumbled by 5.6 per cent, auto by 3.9 per cent, realty by 3 per cent metal by 2.6 per cent and FMCG by 1.2 per cent.
Among banks, State Bank of India was the top loser with a fall of 7.7 per cent at Rs 279.30 per share while Yes Bank dropped by 5 per cent. Bank of India, Union Bank of India, Canara Bank, Bank of Baroda, Punjab National Bank, Indian Bank, Allahabad Bank and Oriental Bank of Commerce were down between 2 to 5 per cent. Kotak Mahindra Bank, HDFC Bank, ICICI Bank and Axis Bank were also under pressure.
Auto stock slipped dramatically with Tata Motors down by 5.9 per cent, Eicher Motors by 4.5 per cent, Maruti Suzuki by 4.4 per cent and Mahindra & Mahindra by 4.2 per cent. Maruti reduced the price of select models by Rs 5,000 to clear its huge pile-up of inventories following falling sales.
The other prominent losers were ITC, Hindalco, Cipla and Grasim. However, IT stocks like Tata Consultancy Services and HCL Technologies showed marginal gains along with Power Grid Corporation, NTPC, IndianOil Corporation, Bharat Petroleum Corporation and Hindustan Lever.
Meanwhile, Asian stocks fell as US lawmakers launched an impeachment enquiry into US President Donald Trump over whether he sought help from Ukraine to smear former Vice President Joe Biden, a front-runner for the 2020 Democratic presidential nomination.
Further, trade concerns emerged with Trump saying that he will not accept a bad deal in trade talks with China as the world's two largest economies meet in early October to end the long-drawn trade war.
MSCI's broadest index of Asia Pacific shares outside Japan was down by 0.2 per cent while Japan's Nikkei fell by 0.36 per cent. Hang Seng slipped by 1.28 per cent, South Korean Kospi by 1.32 per cent and Shanghai Composite by 1 per cent.