The Sensex and the Nifty posted a sixth session of losses on Wednesday, staying near three-month lows hit on Tuesday, as hopes dwindled that a crucial tax reform would be cleared in the ongoing winter session of Parliament.
Also, weak global cues due to crumbling oil prices and data pointing to cooling demand from China sapped investors' appetite for risk assets.
The main Opposition Congress Party had disrupted the Parliament session and accused the government of pursuing a "vendetta" against the Gandhi family on Tuesday, in a blow to hopes of passing the proposed goods and services tax (GST) Bill.
Prime Minister Narendra Modi's government plans to implement the nationwide tax that will replace a long list of state levies from April 2016.
The 30-share BSE index Sensex plunged 274.28 points or 1.08 per cent to 25,036.05 and the 50-share NSE index Nifty dropped 89.2 points or 1.16 per cent to 7,612.50.
All BSE sectoral indices ended in the red. Among them, metal index fell the most by 3.07 per cent, followed by healthcare 2.02 per cent, auto 1.74 per cent and oil & gas 1.72 per cent.
Top five Sensex gainers were BHEL (+2.61%), TCS (+1.55%), ITC (+0.71%), ONGC (+0.49%) and NTPC (+0.12%), while the major losers were Vedanta (-5.57%), Tata Steel (-3.37%), Coal India (-3.24%), Cipla (-2.93%) and Bajaj Auto (-2.92%).
Shares in logistics firm Gati, which stand to gain most from a speedy rollout of the tax, fell 7.95 per cent.
Profit-booking was seen in stocks such as Sun Pharma (-1.58%) and Reliance Industries (-2.81%).
Meanwhile, shares of Bharat Heavy Electricals (BHEL) rose after a minister said the government had no plans to divest some of its shareholding in the company.
Investors are also keeping a close watch on the initial public offerings of Alkem Laboratories which was fully subscribed and Dr. Lal PathLabs which was also fully subscribed. Bookbuilding ends on December 10 for both issues.
Brokers' comment
"Initially, people didn't even expect GST to go through, the expectation was one of some sort of consensus arriving," said Arun Gopalan, vice-president of research at brokerage firm Systematix Shares and Stocks.
"But now with a lot of other unrelated negatives coming into the political scenario, even that sort of a consensus the market would find difficult to envisage."
Domestic stock market, where foreign investors hold slightly under a quarter of shares, is expected to see capital outflows accelerate ahead of the US Federal Reserve's December 15-16 meeting, when it is widely expected to lift rates.
A report by SMC Global said: "Asian stock markets risked slipping to two-month lows as crumbling oil prices took a toll on energy and resource shares, with cooling demand from China putting more pressure on resources-reliant economies. US stock-market indexes closed lower for a second-straight day on Tuesday, and the Dow Jones Industrial Average posted back-to-back declines of at least 100 points, as stocks were dogged by a rout in crude oil prices. Consumer prices in China advanced 1.5 per cent on year in November, the National Bureau of Statistics said. That exceeded forecasts for an increase of 1.5 per cent and was up from 1.3 per cent in October. On a monthly basis, inflation was flat following the 0.3 per cent decline in October. The bureau also said that producer prices contracted an annual 5.9 percent - in line with expectations and unchanged from the previous month.''