Frontline share snapped a two-day winning streak on Wednesday to close sharply lower as traders sold for profits in recent gainers, mainly in the banking, technology and real estate space.
Though most other Asian were trading in positive terrain on a further dip in crude oil, India shares were unable to cash in on the rise as participants felt the current rally may have run out of steam and chose to go short.
Concerns on the political front, stemming from the nuclear deal meeting between members of the UPA government, also dampened sentiment, along with negative cues from European markets.
Bombay Stock Exchange's Sensex closed at 15,422.31, down 274 points or 1.75 per cent, falling from a high of 15789.62 to a low of 15390.22.
BSE Mid-cap Index ended at 6,359.79, down 0.63 per cent and BSE Small-cap Index closed at 7,775.29, down 0.08 per cent.
Biggest index losers were ICICI Bank (down 4.25%), HDFC Bank (3.4%), Tata Steel (3.18%), Larsen & Toubro (3.12%), Reliance Infrastructure (2.83%), Jaiprakash Associates (2.93%), State Bank of India (2.61%) and BHEL (2.64%).
Ambuja Cements (up 4.8%), Ranbaxy Laboratories (2.88%), Grasim Industries (2.38%), Maruti Suzuki (1.24%) and Hindalco Industries (0.96%) were the gainers in the 30-share index.
Market breadth turned negative with 1,402 declines against 1,254 advances on BSE. On NSE, 521 shares rose and 733 fell.
National Stock Exchange's Nifty closed at 4570.75, down 1.77 per cent or 82.25 points. The index touched a high of 4679.75 and low of 4569.90.
"After falling to 4369.80 (Nifty) on June 10, the market has been in recovery mode, where substantial short covering has been taking place. Today's fall is a counter move to yesterday's excess. At the beginning of the session the sellers had the upper hand and thus he market ended with losses. Technically, I think 4530-40 should provide support to the Nifty. I do not advise going short from current levels," said Vasant Joshi, independent technical analyst.
Nifty June futures ended at a 15-point discount to the spot index, adding over 17 lakh share in open interest, up 4.39 per cent from Tuesday.
Elsewhere in Asia, stocks finished higher. Shanghai's benchmark index surged 5.2 per cent, Tokyo's Nikkei 225 increased 0.7 per cent and Hong Kong's Hang Seng Index climbed 1.16 per cent.
In Europe, FTSE 100, DAX 30 and CAC 40 were down about 1.5 per cent each at the time Indian markets closed.