The 30-share Sensex ended lower by 1.3% or 350 points at 25,999 and the Nifty was off 1.5% or 116 points to close at 7,748.
India's volatility index, India VIX surged 12.6% to end at 16.43, the highest closing level in three months.
Foreign funds were net sellers in equities to the tune of Rs 695 crore on Tuesday.
Earlier in the day, the markets had opened lower but rebounded later defying weak Asian markets as exit polls suggested that the ruling Bharatiya Janata Party is set to emerge as the largest party in Maharashtra, thanks to intense campaigning by Prime Minister Narendra Modi.
However, the market turned choppy later and witnessed a sell-off in late trades.
In the broader markets, the Mid and Smallcap indices ended down 2.5% each, underperforming the BSE benchmark index.
Global Markets
Global markets showed some signs of stabilisation on Thursday after their most turbulent day in four years, but worries about world growth and the end of years of US stimulus kept investors in a fraught mood.
European stocks bounced 1% as the region's bourses opened after Wednesday's 3.2% plunge, but fell back into the red soon after on concerns about a bond market sell-off in the debt of peripheral euro zone countries. CAC, FTSE and DAX were down 2-4% each.
Asian shares were off session lows but still nursed losses amid a sell-off in global equities on Thursday, as heightened concerns about world economic growth pressured US Treasury yields and curtailed the dollar's recent rally.
MSCI's broadest index of Asia-Pacific shares outside Japan was down about 0.3% in late afternoon trade.
Shanghai shares bucked the downtrend and added 0.1% after Chinese bank lending data provided a regional bright spot.
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