The Sensex ended at 18,709, down 229 points and the 50-share Nifty slipped 71 points to close at 5,676.
Meanwhile, the European markets were trading on a weak note as concerns over the global economic outlook and its impact on the coming corporate earnings season weighed on investor sentiment.
The World Bank cut its estimate for East Asian growth, including for China, and this has undone some of the positive sentiment that followed Friday's sharp drop in US unemployment for September.
The CAC40 index was down 1.2% at 3,418, DAX slipped 1.4% to 7,295. However, the FTSE100 index was trading marginally higher at 5,831 levels.
The Asian markets ended on a weak note.
The Hang Seng, Shanghai Composite and Seoul Composite closed weaker by 0.6-1% each.
Back home, Cautioning that absence of economic reforms will slow down growth, Finance Minister P Chidambaram today said political parties may oppose but should not obstruct decision making.
"Every government is entitled to lay down policies. Opposition to policies is legitimate, obstructionism is not," Chidambaram said while addressing the annual Economic Editors' Conference.
Index heavyweight Reliance Industries was the top Sensex loser.
The plunged 4.6% to Rs 818 after Morgan Stanley cut its rating on the company to 'underweight' from 'equal-weight' due to lack of near-term triggers, expectations for weaker refining margins and valuation.
"Morgan Stanley also cited concerns about Reliance's investments into businesses that offer "low" return-on-equity, as well as a subdued outlook on petrochemicals in a noted on Monday," the Reuters report suggests.
Hindalco Industries ended lower by 3.2% at Rs 121 after Citigroup downgraded the non-ferrous metals producer to 'sell' from 'buy' and cut its target price to Rs 118 from Rs 164. Citigroup says Hindalco has not been immune to macro headwinds or oversupply, and also cites rising costs for fuel/power, slower clearances that are making project economics less viable, and an appreciating rupee among factors behind the downgrade.
BHEL, Larsen & Toubro, State Bank of India, Tata Motors, Wipro, Tata Power, ONGC, Coal India, Infosys, ICICI Bank, Hero MotoCorp, TCS, Tata Steel, HUL, Mahindra & Mahindra, Sterlite Industries and Gail India were also among the losers down 0.3-3.6%
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