The 30-share sensitive index of the Bombay Stock Exchange (BSE) Monday closed at 11,801.70 points, registering a drop of 724.62 points, or 5.78 percent.
The situation is the same on the National Stock Exchange (NSE), where the broader S P CNX Nifty, a basket of 50 shares, was down 5.66 percent at 3,602.35 points.
"This has happened because of overselling by overseas investors and virtually no buying support from domestic investors," said S.P. Tulsian, a noted investment advisor.
"The crash is a result in acceleration in foreign fund outflows coupled with fall of rupee amid fear of credit crisis in the west," said Tulsian.
In a bid to bring some cheer to the equities market, India's markets watchdog Securities and Exchange Board of India (SEBI) Monday removed some restriction on foreign funds, like the 40 percent cap on participatory notes and overseas derivative instruments.
Also on Monday, the Reserve Bank of India cut cash reserve ratio (CRR) by 50 basis points to 8.5 percent.
Editor: Yan Liang