Benchmark Sensex tumbled 1,236 points or 1.5 per cent while Nifty closed near 25,450 on Thursday following an across-the-board sell-off amid escalating geopolitical tensions between the US and Iran.
Halting the three-day gaining streak, the 30-share BSE Sensex tumbled 1,236.11 points, or 1.48 per cent, to settle at 82,498.14.
The 50-share NSE Nifty slumped 365 points, or 1.41 per cent, to close at 25,454.35.
Among the Sensex constituents, IndiGo, Mahindra & Mahindra, UltraTech Cement, Trent, Bharat Electronics Ltd, Adani Ports, Kotak Mahindra Bank, Reliance Industries, Tech Mahindra, ITC, Eternal and PowerGrid were the major laggards.
"The bears took charge of the Indian market as rising geopolitical tensions between the US and Iran unsettled global sentiment, leading to a broad-based sell-off," Vinod Nair, Head of Research, Geojit Investments Ltd, said.
He added that Brent crude surged to its year-to-date high, exacerbating inflationary concerns and triggering heightened market volatility due to the fear of the bottlenecking of the Strait of Hormuz.
"At the same time uncertainty surrounding the US Fed's rate-cut trajectory and continued weakness in the INR impacted the domestic market. Sell-off intensified due to low FII participation because of Lunar New Year holiday across key Asian markets and a non-settlement day on account of a regional banking holiday in India," Nair said.
Meanwhile, Brent Crude, the global oil benchmark, rose 1.02 per cent to USD 71.07 per barrel.
In Asian markets, South Korea's Kospi settled 3 per cent higher, while Japan's Nikkei 225 benchmark closed 1 per cent higher. Markets in Hong Kong and mainland China remained closed for the Lunar New Year holidays.
European markets are trading lower in mid-session deals. The US equities market closed in the green territory on Wednesday.
Foreign institutional investors bought equities worth Rs 1,154.34 crore on Wednesday, while domestic institutional investors were also the net buyers of stocks worth Rs 440.34 crore, according to exchange data.
On Wednesday, the 30-share BSE Sensex jumped 283.29 points to settle at 83,734.25, while the broader NSE Nifty gained 93.95 points to close at 25,819.35.