The Bombay Stock Exchange benchmark Sensex plummeted nearly 477 points with investors rushing to subscribe to Reliance Power's initial public offer which opened on Tuesday.
Market players said corporate as well retail investors in their rush to invest in Reliance IPO pressed the sales button across-the-board after the mid-session, leading to liquidity drain from the secondary market.
The Reliance IPO was oversubscribed by nearly 10 times within four hours of its opening.
The 30-share BSE barometer ended the day at 20,251.09, a net fall of 476.96 points, or 2.30 per cent, from previous close.
The index touched the intra-day low of 20,203.63 points and jumped to the day's high of 20,872.93 points.
The 50-share Nifty of the National Stock Exchange too tumbled by 132.55 points, or 2.14 per cent, to close at 6,074.25 points from last close.
The weak trends in Asian and European markets also weighed down the domestic bourses.
Commenting on overwhelming response to the mega IPO, Finance Minister P Chidambaram said it seems to reflect the confidence of global investors in the Indian economy.
In the IPO, the quota for foreign institutional investors is also absorbed within minutes of the opening of issue.
Meanwhile, technical analysts placed the lower trading support at 20,050 and 19,775 as the market has breached the 20,319 level at close.
They said the market is required to cross the important resistance at 20,938 level to again test the recent heights.