The BSE benchmark Sensex plunged 554 points Thursday, dragged down by losses in banking, energy and capital goods stocks even as the RBI cut the policy rate to shore up growth.
Slashing benchmark lending rate for the third time this year, the central bank cut the repo rate by 0.25 per cent and changed its monetary policy stance from 'neutral' to 'accommodative'.
The RBI, however, lowered the economic growth forecast for the current fiscal to 7 per cent due to slowdown in domestic activities and escalation in global trade war.
Following the announcement, the 30-share index cracked 553.82 points, or 1.38 per cent, to settle at 39,529.72. The bourse hit an intra-day low of 39,481.15 and a high of 40,159.26.
In similar movement, the NSE Nifty plunged 177.90 points, or 1.48 per cent, to end at 11,843.75. During the day, it hit a low of 11,830.25 and high of 12,039.80.
Top losers in the Sensex pack included IndusInd Bank, Yes Bank, SBI, L&T, Tata Steel, M&M, Bajaj Finance, Vedanta, Tata Motors and RIL, tumbling up to 6.97 per cent.
Bucking the negative market trend, Coal India, PowerGrid, NTPC, HUL, Hero MotoCorp, Asian Paints and Infosys gained up to 1.92 per cent.
"The rate cut could not infuse positivity, and the decline steepened as focus shifted from policy rates to new emerging short-term tight liquidity situation due to issues like IL&FS, DHFL and its impending impact on other financial institutions if any," said Narendra Solanki, Head Fundamental Research (Investment Services) - AVP Equity Research, Anand Rathi Shares & Stock Brokers.
Lowered GDP forecast for current year and failure to get any cue from RBI on the liquidity front except general assurance of addressing the situation added to the selling pressure later in the day, he added.
The Indian rupee fell marginally to 69.28 against the US dollar.
Meanwhile, other Asian bourses ended on a mixed note, while Europe was trading in the green in opening deals.
Brent crude futures, the global oil benchmark, fell 0.76 per cent to 61.09 per barrel.