Cutting their six-session gaining string, both Sensex and Nifty ended down by nearly 464 points and 153 points, respectively as the week saw market swaying on a host of negative factors.
In the midst of Supreme Court verdict on coal block allocations, sustained FII selling, weak global cues and even deferment of decision on gas price mainly weighed on market sentiment.
Onset of the week saw the bourses strongly rebounding, sidelining global weakness amid buying in bluechip stocks.
But, continued FII selling, concerns over global growth after data showing Eurozone's private sector activity slowing down and China showed factory employment slumped to 5-1/2 year low led the benchmark to 2-1/2 month low, eroding investor wealth by Rs 1.6 trillion on Tuesday.
The market witnessed further selling after Supreme Court cancelled the allocation of 214 coal blocks out of 218.
Selling pressure also mounted as the government once again deferred decision on hike in gas price and caution ahead of derivative expiry of September series.
The volatile market was finally calmed by credit rating agency Standard & Poor's (S&P) revision in country's outlook to stable from negative on political ability to push growth and reforms.
The benchmark S&P BSE Sensex resumed lower and traded in a wide range between 27,256.87 and 26,220.49 before ending the week at 26,626.32, showing loss of 464.10 points or 1.71%.
On September 23, it had plunged 431.05 points, or 1.58%, registering biggest fall since July 8, 2014 when it had stumbled by 517.97 points or 1.98%.
The NSE 50-share Nifty also moved in a range of 8,159.90 and 7,841.80 before closing sharply down by 152.60 points, or 1.88%, at 7,968.85.
FPIs/FIIs, the main market drivers, sold shares worth Rs 3,124.21 crore during the week, including provisional figure of September 26.
Meanwhile, Asian Development Bank (ADB) revised country's GDP upwards to 6.3% in 2015 as economy shows a new promise of turnaround.
Jignesh Chaudhary, Head Of Research, Veracity Broking Services said, "The Indian equity markets observed huge correction during the week as there was profit-booking. In spite of a huge move taken by the Government in which the Prime Minister initiated 'MAKE IN INDIA' to encourage the industrial output of the country."
"The markets then also stayed in red in mid-week and recovered on last day when S&P revised India's credit outlook to stable from negative so the markets reacted positively on the same.
"The much-awaited US visit of the Prime Minister is also scheduled in the coming week so that also would be affecting the markets. The economic calendar would be active in the coming week for Indian & US economy both as there are many important data releases which are scheduled, including RBI's monetary policy review," he added.
Some equity dealers said investors preferred to book profits or roll-over their positions to next October series rather than making purchases on the last day of derivatives contract on September 25 as they want to play safe ahead of RBI's monetary policy meeting on September 30.
Second-line stocks too suffered heavy losses as their indices, the BSE-Smallcap and the BSE-Midcap tumbled by 6.08% and 4.50%, respectively and underperformed the Sensex.
Next week, market participants are looking for outcome of the apex bank's monetary policy meet on September 30 and HSBC India Manufacturing PMI for September which is due on October 1.
From the 30-share Sensex pack, BHEL dipped by 9.52% , followed by Tata Steel (7.09% ), RIL (6.13% ), ICICI Bank (5.88% ), SBI (4.89% ), Axis Bank (4.38% ), Hindalco (4.20% ), Tata Power (4.15% ), L&T (3.85% ), Bajaj Auto (3.04% ), SSLT (3.03% ), Cipla (2.50% ), HDFC (2.59% ), Bharti Airtel (2.36% ), Maruti Suzuki (1.61% ), Tata Motors (1.45% ), GAIL India (1.38% ) and TCS (0.93% ).
However, ITC rose by 3.42% , HUL (1.99% ), ONGC (1.78% ), M&M (1.33% ), HDFC Bank (1.31% ) and NTPC (1.01% ).
Selling was seen across-the-board as 11 out of 12 sectoral indices closed in the red. Among the S&P BSE sectoral indices, Realty tumbled by 8.21% , CG by 4.50% , Metal (4.11% ), Power (4.00% ), Bankex (3.35% ), Oil & Gas (3.34 % ) and Auto (1.43% ).
The total turnover at BSE and NSE dropped to Rs 17,646.48 crore and Rs 89,849.82 crore from Rs 20,581.37 crore and Rs 92,300.19 crore last week, respectively.