Global markets fell sharply on the back of gloomy economic reports from the US and China. A credit downgrade of the world's 15 major banks by Moody's also hit investor sentiments.
Markets in Asia traded lower after the Dow Jones average witnessed the second biggest fall this year.
There was some recovery after the sharply lower opening. The Sensex traded 110 points or 0.6% lower at 16,923, while the Nifty traded 34.50 points lower at 5,130.50 at 09.25 a.m.
Cement stocks were the top losers on the back of the stiff penalty imposed by the Competition Commission of India, which had fined 11 Indian cement companies in a price collusion investigation. These 11 companies will have to pay in excess of Rs 6,000 crore in penalties.
JP Associates (-3.35%), ACC (-3%), Grasim Industries (-2.8%), and Ambuja Cements (-2.7%) were the top four losers on the Nifty index.