The fall came on the back of a massive selloff in NBFCs, led by DHFL which skidded over 50 per cent on fears of a liquidity crisis.
Sensex has shed over 150 points in afternoon trade.
This is the highest closing for both the indices since May 15.
HDFC Bank was the top loser in the Sensex pack, falling 2.99 per cent, followed by Adani Ports at 2.87 per cent.
The NSE Nifty ended at 4,346, down 183 points.
The 30-share Sensex ended down 90 points at 19,429 after hitting an intra-day low of 19,398 and the 50-share Nifty ended down 40 points at 5,881 after touching an intra-day low of 5,871.
The ongoing corporate results and the Union budget are also making participants tread cautiously though the GST agreement provided some relief.
The top gainers on the Sensex were Cipla, Bharti Airtel, Maruti Suzuki, Hero Moto & Sesa Sterlite.
Coal India fell the most by 2.58 per cent among Sensex scrips, dragging the index into the negative zone.
The NSE 50-share Nifty also closed higher by 61.60 points, or 0.59 per cent, at 10,504.80 after shuttling between 10,513 and 10,441.45.
Telecom shares rallied on hopes that they would hike tariffs after huge investments to acquire spectrum.
Yes Bank was the top gainer in the Sensex pack, surging 3.76 per cent, followed by SBI at 3.18 per cent.
The dollar is king in an intermediate correction, says Sonali Ranade
Sustained FII inflows and fresh spell of buying by domestic institutional investors fuelled the rally
Sentiments turned somewhat weak towards the middle of the session as profit-booking emerged as investors turned cautious on disappointing quarterly earnings by some bluechip companies
The broader NSE Nifty closed 1.25 points, or 0.01 per cent down at 10,564.05.
The higher rate cut by RBI is positive for rate-sensitive sectors in the medium to long term.
The Nifty finished the day at 10,265.65, a hefty gain of 98.95 points, or 0.97 per cent, after shuttling between 10,270.85 and 10,195.25.
Profit-booking by participants in view of the domestic markets' recent record-setting run fuelled the downtrend
The wider Nifty hit a low of 10,033.35 before finishing at 10,044.10, down 74.15 points or 0.73 per cent.
Covering-up of pending short positions on expiry of the July derivatives contracts and a strengthening rupee propped up the markets at high levels
Infosys slipped nearly 9% after the company cut full year revenue outlook for FY17.
Geo-political concerns over death of a Saudi journalist, Brexit and likely breach in Italy's budget also kept investors cautious.
Nifty PSU Bank index gained 1% led by Allahabad Bank, Andhra Bank, Syndicate Bank and IDBI Bank
Small- and mid-cap stocks continued facing selling pressure due to stretched valuations.
The markets opened flat on the back of weak Asian cues. At 9:58 am, the Sensex was trading at 11933 up 15 points and the Nifty was trading at 3474 up 3 points.
Asian shares have begun the week on a plaintive note.
The broader NSE Nifty dipped below the 10,200-mark to hit a low of 10,180.25 before ending at 10,195.15, down by 165 points, or 1.59 per cent.
Sun Pharma was the biggest gainer in the Sensex pack, advancing 1.79 per cent.
Investors were anxious concerned about the uncertainties over the timing of Us Federal Reserve rate hike, US policies under President Donald Trump, the upcoming French election and rising crude price that could impact inflation, going ahead. A weak closing in Asia tracking overnight losses in the US owing to all these unknowns triggered selling, brokers said.
The wider NSE Nifty touched a low of 10,652.40 before finishing at 10,671.40, showing a loss of 97.75 points, or 0.91 per cent.
The breadth, indicating the overall health of the market, turned negative. On the BSE, 1,581 shares declined and 1,246 shares fell. A total of 165 shares were unchanged.
The NSE Nifty cracked below the 10,800-mark to hit a low of 10,753.05 intra-day, before closing at 10,762.45 with a loss of 59.40 points, or 0.55 per cent.
The Nifty gained 62 points to close at 3,178.
HDFC, ONGC, Maruti Suzuki, HeroMoto Corp and Bajaj Auto gained the most on BSE Sensex
BSE Bankex and Telecom indices led the fall.
The NSE Nifty, which dipped below the key 10,800-mark to touch a low of 10,755.40, bounced back on late buying to close at 10,817.70, up 9.65 points, or 0.09 per cent.
The broader NSE Nifty too reclaimed the key 11,500-mark. It touched a high of 11,562.25, before finally settling at 11,536.90, showing a gain of 59.95 points, or 0.52 per cent.
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