The BSE benchmark Sensex declined by 154 points on selling by funds after slower factory output growth raised concerns of RBI raising interest rates, amid a weak global trend.
The Bombay Stock Exchange benchmark Sensex, which had lost 142 points in the previous session, fell further by 153.89 points to 18,174.09, after touching the day's low of 18,063.29.
Similarly, the broad-based National Stock Exchange index Nifty lost 48.95 points to 5,445.45, after hitting a low of 5,411.55 points during the session.
Dealers said slower growth in factory output and volatile crude oil prices in global markets continued to haunt the trading sentiment.
"The fight against inflation will continue as policy makers watch surging crude oil prices," said Rajiv Malik of Delhi-based broking firm RNM Financial Services.
The country imports about 75 % of its oil, the cost of which is up 25 % from the previous year in New York this week. The Reserve Bank of India raised interest rate seven times since March 2010, and indicated more hikes to curb the pace of commodity price rise.
Meanwhile, the industrial output growth slowed to 3.7 % in January from 16.8 % a year ago, dragged down by the poor performance of the manufacturing sector, particularly the capital goods.
A weak trend in the Asian region and lower opening in Europe further influenced the market sentiment. Asian stock markets slipped further after sharp falls on Wall Street and higher-than-expected Chinese inflation data.
In the afternoon, a major Japanese earthquake caused the yen to fall sharply against the US dollar.
Bharat Heavy Electricals, the biggest power-equipment maker, declined 3.64 % to Rs 1,974.70. Housing Development Finance Corp, the largest mortgage lender fell by 0.93 % to Rs 660.65, taking its slide since March 4 to 4.4 %.
However, the heaviest on the Sensex Reliance Industries rose by 7.15 to Rs 991.60 and ONGC ltd by Rs 5.90 to Rs 281.30. The two carry nearly 14 % weightage on the index.
The metal index suffered the most by losing 1.91 per cent to 15,367.78 followed by teck index by 1.61 % to 3,597.61. IT sector index lost 1.40 % to 6,149.98 and power index by 1.49 % to 2,554.03.
As selling remained wide-based, the smallcap index fell by 1.12 % to 7,899.81 and midcap index by 1.07 % to 6,529.28.