The Sensex traded 190 points lower at 19,453 while the Nifty was down 54 points to 5,889 as of 10.10 a.m. The rupee also slipped sharply to 54.41 against the dollar.
Domestic shares fall in line with weak global shares that fell on market talk that a hedge fund had been liquidating large positions in commodities, as well as worries the Federal Reserve could slow its bond buying program.
The MSCI's broadest index of Asia-Pacific shares outside Japan tumbled 1.8 per cent, Hong Kong shares declined 1.6 per cent while Tokyo's Nikkei stock average fell 1.26 per cent.
Barring consumer durables, all groups of stocks traded lower. High beta stocks such as metals and realty saw sharp downsides. Capital goods and FMCG stocks also traded with over 1 per cent cut.
Bank shares lead the declines a day after RBI data showed that loan growth continues to remain a concern. ICICI Bank shares fell 1.6 per cent while State Bank of India slipped 0.8 per cent.
Banks' advances grew 8.7 per cent so far this fiscal year, compared with 11.2 per cent a year earlier, while deposit growth was 7.8 per cent compared with 11.4 per cent in the same period a year earlier.
45 stocks traded lower on the Nifty led by iron ore miner Sesa Goa. Infra major Jaiprakash Associates, infra lender IDFC, aluminium maker Hindalco and Jindal Steel and Power traded with 2-2.6 per cent cuts.
IT major HCL Tech was the top Nifty gainer followed by two-wheeler major Bajaj Auto.
Kingfisher Airlines shares were up by their daily limit of 5 per cent for the fourth straight day though other aviation stocks such as SpiceJet fell sharply after Malaysia based AirAsia said it plans to start India operations.
Shriram Transport Finance shares sunk 7 per cent after U.S. private equity firm TPG Capital planned to sell part of its stake in the company to raise about $300 million, according to a term sheet seen by Reuters.
(With inputs from Reuters)