The Mumbai stock exchange's 30-share Sensex index dived 176.20 points or 2.21 percent to close at 7,798.49. The Sensex has lost 1,023.55 points since October 5 when it reached an all-time trading high of 8,821.84.
Turnover was moderate at 27.88 billion rupees (619 million dollars) as 1,641 stocks declined and 764 gained. India's two main stock markets allow investors to buy stocks on futures contracts that are widely used by domestic and overseas funds to manage risk.
Dealers said that better-than-expected quarterly results from Reliance Industries, the country's largest private company, failed to lift the broad market.
Reliance said second-quarter net profit jumped almost 42 percent to 24.81 billion rupees (551 million dollars) in the quarter to September from 17.52 billion rupees a year earlier, with the results driven by higher product prices in its core oil refinery business. Reliance Industries shares closed down 1.66 percent or 12.65 rupees to 751.20.
Dealers said foreign funds have sold more than 500 million dollars of Indian shares in October, though they remain net investors of more than 8.0 billion dollars since the start of the year. Indian stock markets are closed on November 3 and 4 to mark Diwali, known as the festival of lights. Reliance shares closed down 12.65 rupees or 1.66 percent to 751.20.