The BSE Sensex index, which had gained 114 points in last two sessions, plunged 255.14 points, or 1.25 per cent, to end at 20,193.35. This was the biggest drop since 304.59-point fall on February 3.
"Weak quarterly results of certain large caps, poor global cues and uncertainty over a clear direction to the markets may have led to sharp weakness," said Milan Bavishi, Head Research, Inventure Growth & Securities.
Cipla shares saw a nearly 8 per cent drop after third quarter earnings lagged estimates. PSU major Coal India Ltd (CIL) fell 3.4 per cent on disappointing earnings. SBI ended 2.16 per cent down ahead of Q3'FY14 results tomorrow. Overall, 26 of 30 Sensex constituents ended down.
The 50-share NSE Nifty dropped 82.90 points, or 1.36 per cent, to end at 6,001.10. Intra-day, it moved between 5,991.10 and 6,094.40. Today's drop was the sharpest since 87.70-point dip on February 3.
Global stocks fell, led by a drop in Tokyo, ahead of US data releases.
Worries over the domestic economy also led to selling after data yesterday showed industrial output contracted 0.6 per cent in December. Retail inflation easing to 2-year low of 8.79 per cent in January, did not appear to enthuse investors.
"Disappointing IIP also weakened market sentiment," said Nidhi Saraswat, Senior Research Analyst, Bonanza Portfolio.
Eleven of the twelve BSE sectoral indices closed down. Rate-sensitive banking and capital goods settled with over two per cent losses. The realty sector, however, ended up.
The MSCI Global Standard Indices will see the deletion of Lupin, Power Grid Corporation of India and Zee Entertainment Enterprises from global standard indices with effect from February 28. All the three scrips ended in the red.
In step with stock markets, the Indian rupee was trading 24 paise lower at 62.35 versus dollar in late trades.