The Sensex opened with a small negative gap of three points at 7,795, which turned out to be the high for the day.
Sustained selling saw the index plunge to a low of 7,656 - an intra-day swing of 139 points. The Sensex finally closed with a loss of 113 points (1.5%) at 7,686.
The Nifty lost 37 points to close at 2316.
Bharti closed on a firm note with a gain of 5% (Rs 17) at Rs 329 after the announcement that Vodafone had acquired 10% stake in the company for over Rs 6,600 crore.
SBI dropped over 2% (Rs 20) to Rs 811. ONGC declined 2% (Rs 18) to Rs 918.
HLL slipped 3% (Rs 5) to Rs 157. Reliance was down Rs 10 at Rs 741.
Wipro declined over 4% (Rs 16) to Rs 357. Satyam was down 3% (Rs 18) at Rs 572. Infosys dropped over 2% (Rs 51) to Rs 2,417. TCS was down 3% (Rs 44) at Rs 1,362.
Tata Motors plunged 5% (Rs 24) to Rs 461. Bajaj declined over 4% (Rs 73) to Rs 1,660. Maruti was down Rs 16 at Rs 515, and Hero Honda dropped Rs 19 to Rs 696.
Dr. Reddy's was down Rs 12 at Rs791. Cipla dropped Rs 10 to Rs 348, and Ranbaxy declined Rs 6 to Rs 352.
L&T slipped over 3% (Rs 43) to Rs 1,343. BHEL was down Rs 19 at Rs 1,090. HDFC, HDFC Bank, Reliance Energy, Tata Steel and Hindalco also declined.
Tata Power added Rs 4 to Rs 390. ICICI Bank was up Rs 4 at Rs 485. NTPC, Grasim and Gujarat Ambuja finished with marginal gains.
The stock market has lost 1,165 points, or 13 per cent, this month from its peak of 8,821 on October 5.
The sensitive index, which had touched a new intra-day high of 8,822 points, attracted profit selling and placed it today at 7,656.15 with most of the pivotals touching recent lows. The fall in the index took it to two-month low, a level last seen September 1.
It had the biggest fluctuation among equity markets included in global benchmarks. The benchmark has fallen 11 per cent from its record peak.