Mumbai: Equity benchmarks' six-session rally came to a juddering halt on Monday as a flare-up in India-China border tensions hammered investor sentiment.
Profit-booking after the recent rally and a depreciating rupee further weighed on the bourses, traders said.
The BSE Sensex, which made a strong start and touched the 40,000-mark in the morning session, surrendered all gains and plummeted over 1,600 points from the day's high.
It finally ended at 38,628.29, down 839.02 points or 2.13 per cent.
On similar lines, the NSE Nifty tanked 260.10 points or 2.23 per cent to end at 11,387.50.
In a fresh incident in eastern Ladakh, the Chinese army carried out "provocative military movements" to "unilaterally" change the status quo on the southern bank of Pangong lake on the intervening night of August 29-30, but the attempt was thwarted by the Indian troops, the Army said on Monday.
It was the first major incident involving the two sides after the Galwan Valley clashes on June 15 in which 20 Indian Army personnel and an unspecified number of Chinese soldiers were killed.
Investors were also cautious ahead of the release of GDP data, traders said.
Sun Pharma was the top loser in the Sensex pack, plunging 7.34 per cent, followed by SBI, Bajaj Finserv, Bajaj Finance, NTPC, ICICI Bank, Kotak Bank, M&M and Maruti.
Reliance Industries closed 1.75 per cent lower following its deal to acquire Future Group's retail, wholesale, logistics and warehousing businesses for Rs 24,713 crore.
Only ONGC and TCS ended in the green, rising up to 1.74 per cent.
Indian markets opened on a positive note, but the sentiment failed to sustain in the afternoon session following reports of the border tensions with China, said Narendra Solanki, Head- Equity Research (Fundamental), Anand Rathi.
"Also the Sebi's new margining system starts from Tuesday which also likely impacted mid- and small-cap stocks where aggressive profit booking was seen," he added.
All sectoral indices ended in the red with BSE realty, healthcare, basic materials, utilities, power, capital goods, industrials, metal and auto skidding up to 4.70 per cent.
Broader BSE mid-cap and small-cap indices plunged up to 4.37 per cent
Meanwhile, market sentiment also weakened after the release of core sector data.
The output of eight core infrastructure sectors contracted for the fifth consecutive month, dropping 9.6 per cent in July, mainly due to a decline in production of steel, refinery products and cement.
The production of eight core sectors had expanded by 2.6 per cent in July 2019, data released by the Commerce and Industry Ministry on Monday showed.
Asian equities were mixed, with bourses in Shanghai, Hong Kong and Seoul ending in the red, while Tokyo settled with gains.
Stock exchanges in Europe were trading on a positive note in early deals.
Global oil benchmark Brent crude was trading 1.48 per cent higher at USD 46.49 per barrel.
The rupee pared its early gains and settled 21 paise down at 73.60 against the US dollar.