Having traded sideways for most part of the day, the markets nose-dived into the red towards the end of the trading session, owing to selling pressure in heavyweights like Reliance Industries and ITC.
The BSE Sensex ended at 16,462, down 314 points and the Nifty went below the 5,000 mark and ended at 4,935, down 96 points.
RIL accounted for an 84-point loss to the Sensex while ITC accounted for a 34-point loss.
During the day, the BSE benchmark index had touched a high of 16,807 and a low of 16,409.
Asian shares remained wobbly as doubts deepened about Europe's ability to stop its sovereign debt crisis from spinning out of control, with Germany and France split over the European Central Bank's bond buying role.
While Hang Seng shed nearly 1%, Shanghai Composite shut marginally down and the Nikkei index ended marginally higher.
European stocks fell, led lower by banks as Spanish bond yields hit euro-era highs, adding to concerns that the euro-zone debt crisis may be spreading, ahead of some key bond auctions France and Spain.
At 1532 IST, the DAX, the CAC 40 and FTSE 100 had shed nearly 1% each.
Meanwhile, on the economic front, the government released the inflation data for the week ended November 5. The primary article inflation eased to 10.39% versus 11.43% on a weekly basis.
Food article inflation came in at 10.63% versus 11.81% and the fuel group inflation was at 15.49% compared to 14.5%.
With food inflation easing by over a percentage point, Finance Minister Pranab Mukherjee today said if the trend continues, "some relief" can be expected on the price front.
Among the sectoral indices, weakness persisted through-out all the sectors. BSE Oil & Gas, Power and Metal indices, down 3% each, led the losses.
Among the metal stocks, Hindustan Zinc, Sesa Goa, SAIL and Sterlite Industries, down 4-6% each, were the prominent losers.
JP Associates shed 6% at Rs 63 and was the top loser on the Sensex.
Maruti Suzuki traded lower by 4% at Rs 810, extending its 12% fall in past five trading days.
The stock has been underperforming the market since the announcement of its September quarter (Q2) results on November 26.
It fell 16% as compared to a 6% fall in the auto index and a 3% fall in the benchmark index Sensex. The company reported below expected results for 2QFY12.
While sales were down by 16% YoY, net profit dropped by 60% YoY, due to weak petrol car demand, labour issues and strong yen against the Indian rupee.
BHEL and Tata Motors, down 4% each, were the other losers on the Sensex.
Coal India dipped 3% to Rs 304, its lowest since February 2011, extending the 4% decline post September quarter results.
The state-owned company had reported a net profit of Rs 2,593 crore for the second quarter ended September 2011 (Q2), compared to Rs 4,143 crore in Q1.
Hero MotoCorp moved up nearly 1% at Rs 2,124. Hindalco Industries, Cipla and Sun Phrama Industries, up marginally, were the other gainers among the Sensex 30 stocks.
Among individual stocks, Patni Computer Systems rallied 10% to Rs 426 after its promoter - iGate said it plans to delist shares of its Indian unit to obtain full ownership of the company.
iGate holds around 80.4% stake in the company.
The overall market breadth was negative as 1,927 stocks declined against 896 advancing ones, on the BSE.