The weakness in the domestic currency added to investors' misery.
The BSE Sensex closed the day at 33,690, down 343.87 points, or 1.01 per cent, while the NSE Nifty shut shop at 10,125, a loss of 99.85 points, or 0.98 per cent.
Intraday, the NSE Nifty went below the crucial 10,100 mark and hit its lowest level since March 28.
On the 30-share Sensex, only six managed to settle with gains. Wipro was the best index performer, with gains of 3.30 per cent, followed by Coal India, Kotak Mahindra Bank, Asian Paints, PowerGrid and M&M.
Bharti Airtel topped the losers' list. The stock ended down 6.60 per cent at Rs 295.85 ahead of its September quarter results later in the day.
Vedanta, Tata Motors, Adani Ports, YES Bank and HDFC were other laggards.
On the Nifty, 14 stocks advanced, 35 lost and one remained unchanged.
Barring the Nifty IT index, all major sectoral indices closed weak after a turbulent session. PSU Bank, pharma, realty, metals, media, and financial shares contributed to the overall pain.
BSE Midcap and Smallcap indices too closed the day on a subdued note, with losses of 0.58 per cent and 0.98 per cent, respectively.
What made market sentiment dull?
1. Rout in global equities
Global stock markets were firmly on track for their worst month since the financial crisis. Japan's Nikkei closed at it lowest in nearly seven months on Thursday while the broader Topix hit a fresh one-year low, dropping 3.1 per cent to 1,600.92. A rout in technology stocks on Wall Street in overnight trade triggered the global market selloff.
2. Uninspiring earnings
Indian companies are on course to miss their earnings target yet again. Out of the 51 companies on the BSE 500 index that have come out with their second quarter results so far, profits of 28 have missed analysts expectations, stoking worries about further delay in the much-awaited earnings recovery and sharp cuts in forecasts, ET reported.
This kept investors on edge as they were eyeing earnings revival to lift the domestic stock market.
3. F&O expiry
Volatility rose during the day as investors squared off their positions amid the expiry of October futures and options contracts.
4. Rupee weakness
The rupee was trading lower on Thursday amid selling of currency by banks and importers. The domestic unit was 10 paise lower at 73.25 against the greenback.
What experts are saying:
Jayant Manglik, President, Religare Broking
"After a day of upmove, the selling pressure resumed on Dalal Street as the Indian equity benchmark indices ended the derivative monthly expiry session sharply lower by 1 per cent at 10,125, led by negative Asian cues and muted domestic sentiment. We maintain our cautious view on the Indian markets in the near term. While there could be some intermediate bounces, selling pressure could resume at higher levels. Movement of crude oil prices, currency and global developments would be closely monitored in the coming sessions. Domestically, the corporate earnings season so far has not been encouraging. With more results likely to be announced over the next two weeks, stock-specific volatility would continue to remain high. We advise traders and investors to remain selective in stock picking."
Vinod Nair, Head of Research, Geojit Financial Services
"Headwinds from global market and expiry-led volatility dragged the market to negative terrain. However, market tried to gain some support from the lower levels led by benign oil price and yield. The results season is gaining pace whereas the deviations in earnings as compared to consensus is influencing investors sentiment."