Markets ended in the red on weak cues from Asian markets as selling continued in banking shares.
The Sensex dropped to a low of 15,745 in late-noon trades and finally ended with losses of 286 points or 1.7% at 15,865. Nifty ended down 77 points at 4,772.
A weak opening of European bourses weighed on sentiments.
Asian markets continued to slip amid fears of Europe's debt troubles.
The Nikkei slipped 1% to 8,456. Hang Seng was down 3.4%, while Seoul and Straits Times also posted similar losses.
Back in India, banking stocks fell with the BSE bankex dropping 3% to 10,219.
State Bank of India's (SBI) financial strength rating has been downgraded by Moody's Investors Service on the banking entity's capital situation and deteriorating asset quality.
SBI's BFSR has been downgraded from D+ from C-. The downgrade comes a day after Fitch Ratings cut its estimate for India's economic growth from 7.7% to 7.5% for 2011-2012.
For 2012-13, it has estimated India's gross domestic product growth at 8%, down from previous estimate of 8.2%. This is attributed to weak growth forecasts for all major advanced economies.
"SBI is a government-backed
One should avoid fresh investments in the counter at the current juncture," Jagannadham Thunuguntla, Strategist and Head of Research, SMC Global Securities SBI fell 4% to Rs 1,787. Among the heavyweights, ICICI Bank and Reliance Industries accounted for around 90 points fall in the Sensex.
The BSE auto, oil & gas and PSU indices were down nearly 2% as well.
In the auto space, Tata Motors slipped 4.3% to Rs 147 and Mahindra & Mahindra dropped 3.8%.
Metal names such as Jindal Steel and Sterlite slipped 3% each. Coal India tumbled in late trades and ended down 5% at Rs 320.
Meanwhile, Maruti Suzuki advanced 2.7% to Rs 1,107 after the month long standoff between workers and management at its Manesar plant ended. IT stocks edged up, with Wipro gaining 1% and TCS up marginally.
The IT companies are set to reveal their quarterly numbers starting with Infosys on October 12.
Debutant, Prakash Constrowell ended with a premium of 51% at Rs 209 against its issue price of Rs 138 per share on the National Stock Exchange.