The BSE Sensex crashed nearly 788 points, its worst session in about six months, as escalating US-Iran tensions sent crude oil prices soaring and also made investors shun equities and rush to safe haven assets.
At the closing bell, the 30-share Sensex was at 40,676.63, down 1.90 per cent or 787.98 points -- the biggest single-day drop since July 8.
After opening the session on a subdued note, the BSE gauge broadened losses and hit an intra-day low of 40,613.96.
Similarly, the 50-scrip NSE Nifty closed at 11,993.05, falling by 1.91 per cent or 233.60 points.
On the Sensex chart, Bajaj Finance was the top loser, dropping 4.63 per cent, followed by SBI, IndusInd Bank, Maruti, HDFC, Hero MotoCorp, Axis Bank, ICICI Bank and Reliance Industries.
Bucking the broader trend, only Titan and PowerGrid ended with gains.
All sectoral indices ended in the red, with BSE metal, finance, realty, bankex, energy, auto, oil and gas, capital goods and healthcare indices cracking up to 2.96 per cent.
While, broader BSE midcap and smallcap indices slumped up to 2.31 per cent.
Along with soaring crude prices, the negative impact of weakening Indian currency is also weighing on equities.
The Indian rupee dropped 13 paise to close at 71.93 against the US dollar on Monday amid rise in crude benchmark Brent Futures, quoted last at USD 69.64 per barrel -- an increase of 1.37 per cent in price.
"The ground reality is unstable, global market feels that this (US-Iran) tension can escalate further. Investors are closing their current position and shifting to haven assets leading to a mount in bond yield, oil and gold prices," Vinod Nair, Head of Research, Geojit Financial Services, said.
Global markets too remained underpressure after US President Donald Trump warned Iran of major retaliation if Tehran carries out any attack against America to avenge the killing of top military commander Qasem Soleimani and hinted at striking its cultural sites.
Bourses in Shanghai, Hong Kong, Tokyo and Seoul ended lower. European markets were also trading in negative terrain in early sessions.
Trump's statement came hours after Iran announced it will no longer abide by the limits contained in the 2015 landmark nuclear deal.
The US President also threatened to impose "very big sanctions" on Iraq if it follows through on a parliament vote calling for the expulsion of US troops based in the country.
Analysts opined that the Indian market is reacting more negatively than other emerging markets due to crude oil impact.
Since India's dependence on crude imports as a percentage of consumption is the highest, the impact on economy and markets is also higher, they said.
Hemang Kapasi, Portfolio Manager - Equity Investment Products, Sanctum Wealth, said, "The investors have turned cautious because of uncertainties and have taken refuge in gold which is visible from sudden jump in gold prices."