Shares fell 2 per cent on Monday morning to their lowest in 10 months, led by Reliance Industries, as fears of an interest rate rise to tame 13-year-high inflation and political uncertainty weighed on sentiment.
At 10:59 a.m., the 30-share BSE index was down 2.04 per cent, or 297.58 points, at 14,273.71 its lowest since August 2007.
The broader 50-issue NSE index dropped 1.93 percent to 4,263.80.
Crude oil prices rose in Asian trading on Monday after Saudi Arabia said at a weekend summit that it had raised output, and said speculators were partly to blame for higher prices. New York's main oil futures contract, light sweet crude for August delivery, was 29 cents higher at $135.65 per barrel.
Elsewhere in Asia, shares in Japanese suffered big losses Monday, extending their decline into the third straight session, as exporters such as Toyota Motor and Nikon leading the decline. The Nikkei 225 slipped 0.93 per cent. The Hang Seng shed 0.59 per cent in Hong Kong and the Straits Times was down 0.89 per cent in Singapore.
US stocks closed down on Friday as a fresh batch of disappointing news emerged from the financial sector. Financial downgrades put pressure on the large investment houses like Citigroup and Lehman Brothers. The Dow Jones Industrial Average slid 1.83 per cent, the Standards & Poors 500 Index dropped 1.85 per cent and the Nasdaq Composite Index lost 2.27 per cent.