The 30-share Sensex ended down 538 points at 26,781 and 50-share Nifty ended down 152 points at 8,067.
BBenchmark share indices ended at seven-week lows after sharp decline in the rupee, widening trade deficit and global growth concerns led to sell off across the board by investors.
Further, profit booking by foreign institutional investors in the previous sessions also weighed on market sentiment.
The 30-share Sensex ended down 538 points at 26,781 and 50-share Nifty ended down 152 points at 8,067. In the broader market, both BSE midcap and smallcap indices performed worse than the front-liners with losses of around 2.9% and 3.3% each.
Market breadth in BSE ended negative with more than five declines against every advance.
The rupee’s fall touched 13-month lows tracking weakness in equities while selling by foreign funds also added to the downward pressure.
The rupee breached Rs 63 mark to the US dollar and was trading at Rs 63.47 compared to previous close of Rs 62.95.
A private survey showed China's factory growth contracted for the first time in December to 49.5 as new orders waned while the sharp hike in key interest rate by Russia further raised concerns about global growth.
The flash HSBC/Markit manufacturing purchasing managers' index(PMI) for China fell to 49.5 in December from November's final reading of 50.0 and below analysts' forecast of 50.0.
Earlier today, the Russian central bank announced a sharp hike in its key interest rate to 17% from 10.5%.
Further, the Indian markets have emerged as the worst performers in the Asian region in December so far with Sensex losing 6% and Nifty shedding around 5% in this month.
Meanwhile, foreign institutional investors were net sellers in Indian equities worth Rs 455.72 crore on Monday, as per provisional stock exchange data.
BSE IT and Teck indices, ending up 1.6% and 1.1% each were the only sectors in green.
BSE Metal index was the top loser and ended down by over 4% followed by BSE Realty index which lost 3.8%,BSE FMCG index ending with over 3% loss and Bankex closing with near 3% loss.
The fall in rupee to thirteen-month low boosted the information technology shares. TCS gained close to 4% while Infosys and Wipro came under pressure during late noon trades.
Infosys ended marginally higher while Wipro pared gains and ended down 1.2% Weak Chinese factory output data brought fresh pressure on metal stocks. Tata Steel lost over 3%.
Adverse ruling by a special court which rejected the closure report of CBI and asked for fresh investigations into the coal-scam case involving the allocation of coal mines to Hindalco brought its shares down by over 5%.
Cairn India, closing down around 2.5% and its parent firm Sesa Sterlite, ending down over 7% were among the stocks worst hit by the sharp fall in the crude and other global commodity prices.
Oil and gas shares too remained weak on sustained decline in global crude prices. GAIL and ONGC lost around 2% each.
Dr Reddys Lab, closing down over 6%, lost due to Russia's emergency support to Rouble and depreciation of Venezuela's currency.
According to media reports, the company has launched Valcyte generic valganciclovir hydrochloride tablets,an an antiviral medicine, in the US market.
Valcyte tablets have an annual sale of around $440 million in the US. Among financials, SBI lost around 5%, ICICI Bank declined over 4%, HDFC Bank lost around 3% and Axis Bank declined over 1%.
Index heavyweight, ITC and FMCG major HUL declined around than 3% each.
Shares of select state-owned oil marketing companies such as Hindustan Petroleum and Bharat Petroleum gained around 1% to 2% each in an otherwise weak market as global crude oil prices dropped to fresh 51/2 year lows.