HCL Tech was the top loser in the Sensex pack, skidding over 4 per cent, followed by Tech Mahindra Dr Reddy's, Wipro, TCS, Titan and Infosys.
NSE Nifty plunged 167.80 points to 17,110.15.
Equity benchmark Sensex tumbled 581 points on Thursday, in tandem with a global selloff after the US Federal Reserve signalled policy tightening from March.
A depreciating rupee and persistent foreign fund outflows further weighed on sentiment, traders said.
The 30-share BSE index ended 581.21 points or 1.00 per cent lower at 57,276.94.
Similarly, the broader NSE Nifty plunged 167.80 points or 0.97 per cent to 17,110.15.
HCL Tech was the top loser in the Sensex pack, skidding 4.17 per cent, followed by Tech Mahindra, Dr Reddy's, Wipro, TCS, Titan and Infosys.
On the other hand, Axis Bank, SBI, Maruti, Kotak Bank, Sun Pharma and IndusInd Bank were among the gainers, climbing as much as 2.81 per cent.
The Federal Reserve left policy rates unchanged on Wednesday, but chairman Jerome Powell said the US central bank is likely to raise interest rates in March and end its massive bond buying program to combat surging inflation.
Investors fear foreign capital outflows from emerging markets like India after rate hikes in the US.
''As the Fed left key interest rates near zero, its hawkish commentary quickly washed away gains in global markets, leading to a gap down opening in indices back home.
"As FPIs continued to book profits from Indian equities, value stocks made a comeback with the PSU Bank Index rallying over 5 per cent in afternoon trade today, well supported by auto stocks to stage a smart recovery.
“As IT and pharma stocks witnessed profit taking, textile stocks were sought after in the broader market on the back of earnings,'' said S Ranganathan, head of research at LKP Securities.
Ajit Mishra, VP - research, Religare Broking Ltd, said excessive volatility on the global front is keeping domestic markets on the edge.
"With the US FOMC meet behind us, we expect some stability now. However, the prevailing earnings season and upcoming Union Budget would keep the participants on their toes.
"The recent buoyancy in the banking space is certainly encouraging but the other sectors should also support for any meaningful recovery.
“We feel it's prudent to stay light and let the markets stabilise," he noted.
Sector-wise, BSE IT, teck, consumer durables, healthcare and realty lost up to 3.10 per cent, while bankex, auto and finance logged gains.
In the broader markets, the BSE midcap and smallcap gauges slipped much as 1.25 per cent.
Elsewhere in Asia, bourses in Shanghai, Hong Kong, Seoul and Tokyo ended sharply lower on the hawkish Fed stance.
Meanwhile, international oil benchmark Brent crude fell 0.16 per cent to $89.82 per barrel.
Registering its third straight session of loss, the Indian rupee, on Thursday, depreciated by 31 paise to close at 75.09 against the US dollar.
Foreign institutional investors (FIIs) remained net sellers in the capital markets, pulling out Rs 7,094.48 crore on Tuesday, as per provisional data.
Photograph: Danish Siddiqui/Reuters