The broader NSE Nifty sank 177.65 points or 1.53 per cent to 11,419.25.
Extending losses for the second consecutive session, market benchmark BSE Sensex plunged 560 points on Friday after the government thwarted hopes of a tax relief for FPIs.
Led by a sell-off in auto and banking stocks, the 30-share index cracked 560.45 points or 1.44 per cent to settle at 38,337.01.
It hit an intra-day low of 38,271.35 and a high of 39,058.73, swinging 787 points.
Similarly, the broader NSE Nifty sank 177.65 points or 1.53 per cent to 11,419.25.
During the day, the index hit a low of 11,399.30 and a high of 11,640.35.
M&M, Bajaj Finance, Tata Motors, Hero MotoCorp, IndusInd Bank, Yes Bank, Bajaj Auto, Kotak Bank, SBI and ICICI Bank were among the top losers, dropping up to 4.36 per cent.
Index heavyweight RIL closed 1.01 per cent lower ahead of its quarterly results.
NTPC, PowerGrid, TCS and ONGC were the only gainers in the Sensex pack, spurting up to 2.32 per cent.
Replying to a debate on the Finance Bill in Parliament after market hours on Thursday, Finance Minister Nirmala Sitharaman dismissed the argument that the proposed hike in tax on the super-rich would spook foreign portfolio investors (FPIs).
She said the tax hike on individuals earning more than Rs 2 crore will not impact FPIs provided they organise themselves as a company.
Narendra Solanki, Head Fundamental Research (Investment Services) - AVP Equity Research, Anand Rathi Shares & Stock Brokers, said the market was spooked by the finance minister's comments and hardened stance on new tax proposals for market participants.
On a net basis, foreign institutional investors sold equities worth Rs 1,404.86 crore on Thursday, while domestic institutional investors purchased shares to the tune of Rs 329.05 crore, provisional data available with stock exchanges showed.
"Also, the IMF data showed India's current account balance deficit grew to $68 billion in 2018-19 from $49 billion the previous year also added to the already negative sentiments," Solanki added.
Photograph: Shailesh Andrade/Reuters