The benchmark BSE Sensex tanked 538.12 points, its worst single-day drop this year, to slip below 27,000-mark on Tuesday, while the wider Nifty crashed below 8,100 level due to capital outflows amid weak economic data and sharp falls in global markets.
A weakening rupee which slumped to a 13-month low and tumbling global markets on renewed concerns over growth as crude oil prices crahsed to fresh multi-years low, accelerated selling activity on the bourses, brokers said.
Meanwhile, the rupee tumbled by 64 paise, or 1%, to hit a 13-month low of 63.58 against the dollar (intra-day).
Globally, Brent crude slumped to nearly $59 for the first time since 2009.
The 30-share Sensex closed at 26,781.44 points, down by 538.12 points, or 1.97%. Today's drop is the biggest since September 3, 2013 when the BSE index tumbled by 651 points.
After cracking the 8,100-mark, the NSE Nifty touched the day's low of 8,052.60 before settling down by 152 points, or 1.85%, at 8,067.60.
India's trade deficit widened to one-and-a-half year high of $16.86 billion in November due to over six-fold jump in gold imports even as exports grew by 7.27%.
Among the Sensex constituents, 27 ended lower.
Sesa Sterlite was the biggest loser among 30 Sensex stocks. It slumped by 7.77%, followed by Dr Reddy (6.32%), Hindalco (5.67%) and SBI (4.66%).
The stocks of Tata Power (4.59%), ICICI Bank (4.30%) NTPC (3.20%), ITC Ltd (3.13%), Tata Steel (2.82%) and HDFC Ltd (3.11%) also dropped.
A weak Asian trend after data showed industrial acitivity is contracting in China and lower opening in Europe dampened
the trading sentiments, brokers said.
Foreign Portfolio Investors sold shares worth a net Rs 455.72 crore on Monday as per provisional data.
The BSE small-cap index lost 3.36% and the mid-cap index fell 2.96%.