Markets slipped almost 2%, snapping three sessions of gains on mounting concerns of global growth.
The Sensex closed at 16,867, down 299 points, and the Nifty ended at 5,060, down 94 points.
Earlier in the day, the Nifty touched a high of 5,164 for a brief period, but gave up all the gains as $447 billion package by the United States President Barack Obama failed to entice investors.
Worries of slowing global growth accelerated as the European Central Bank and the US Federal Reserve steered clear from announcing any monetary support.
Profit booking seeped in during the afternoon session after European indices fell over 1% each, also snapping two days of gains.
Markets in Asia gave up early morning gains, losses in property and manufacturing stocks dragged the indices lower.
The Nikkei Stock Average ended down 0.6%, the Hang Seng and the Shanghai Composite indices end marginally lower, down 0.6% and 0.2% each.
European markers also plunged over 1% each on back of losses in banking shares.