The BSE benchmark Sensex crashed by nearly 788 points and the NSE Nifty tumbled around 234 points on Monday as heightened tensions in the Middle East kept investors on edge.
The 30-share BSE index ended at 40,676.63, dropping of 787.98 points, or 1.90 per cent. Similarly, the broader Nifty closed at 11,993.05, falling by 233.60 points, or 1.91 per cent.
On the Sensex chart, Bajaj Finance was the top loser, dropping 4.63 per cent, followed by SBI, IndusInd Bank, Maruti, HDFC, Hero MotoCorp, Axis Bank, ICICI Bank and Reliance Industries.
Bucking the broader trend, only Titan and PowerGrid ended with gains.
Domestic market witnessed intense selloff in line with global stocks after US President Donald Trump warned Iran of major retaliation if Tehran carries out any attack against America to avenge the killing of top military commander Qasem Soleimani and hinted at striking its cultural sites.
His statement came hours after Iran announced it will no longer abide by the limits contained in the 2015 landmark nuclear deal.
He also threatened to impose "very big sanctions" on Iraq if it follows through on a parliament vote calling for the expulsion of US troops based in the country.
"Indian market is reacting more negatively than other emerging markets due to crude oil impact. Since our dependence on crude imports as a percentage of consumption is the highest, the impact on economy and markets is also higher," said Rusmik Oza, Sr. VP (Head of Fundamental Research-PCG), Kotak Securities.
"Along with crude, the negative impact of currency is also weighing on Indian markets," Oza added.
Brent crude oil futures surged nearly 2 per cent to $69.81.
The rupee depreciated 24 paise against the US dollar to 72.04 (intra-day).
Bourses in Shanghai, Hong Kong, Tokyo and Seoul ended lower. European markets were also trading in negative terrain in early sessions.