The BSE Sensex fell more than 2 percent, to its lowest close in more than three years as concerns about the global economic outlook weakened and volatile regional markets dented investor appetite.
Reliance Industries, led the losses as foreign funds dumped the stock on worries the company's profit margins would come under severe pressure in the wake of recession in major economies.
The 30-share BSE Index shed 179.79 points to 8,427.29, its lowest close since Nov. 10, 2005, with 27 components out of 30 , losing.The benchmark, which fell for the third consecutive session, has lost 12 percent this year after tumbling more than 50% in 2008 in its worst annual performance.
The stocks slide sent the rupee to a record low for the third day, crossing 52 per dollar, as foreign fund withdrawals and falling exports mounted pressure.
However, export-led outsourcing companies likes Infosys Technologies and Tata Consultancy Services fell 1.7 and 3.1 percent respectively on a gloomy business outlook in the United States, their main market.
Foreign funds have pulled more than $2 billion from Indian markets this year, after outflows of $13 billion in 2008.