Both the key equity indices closed with losses of more than 1.5 per cent each, as heavy selling pressure was witnessed in automobile, banking and capital goods stocks.
The wider 51-scrip Nifty of the National Stock Exchange (NSE) dipped by 151.10 points or 1.70 per cent to 8,715.60 points.
The barometer 30-scrip sensitive index (Sensex) of the BSE, which opened at 28,481.09 points, closed at 28,353.54 points -- down 443.71 points or 1.54 per cent from its previous close at 28,797.25 points.
The Sensex touched a high of 28,481.11 points and a low of 28,251.31 points during the intra-day trade.
The BSE market breadth was skewed in favour of the bears -- with 2,053 declines and 674 advances.
On last Friday, both the key Indian indices were dragged lower by profit booking and negative global markets.
The barometer index had edged down 248.03 points or 0.85 per cent, while the NSE Nifty fell by 85.80 points or 0.96 per cent.
Initially on Monday, the benchmark indices opened with heavy losses -- down almost two per cent each -- following negative global cues.
The confidence of global investors was eroded after cues from the US Federal Reserve increased the possibility of a rate hike. The Fed's FOMC (Federal Open Market Committee) will meet on September 20-21.
A hike in US interest rates can potentially lead FPIs (Foreign Portfolio Investors) away from emerging markets such as India.
It is also expected to dent business margins as access to capital from the US will become expensive.
In addition, caution ahead of the release of major macro-economic data -- the Index of Industrial Production (IIP) for July and inflation figures for August -- later during the day, weighed heavy on the indices.
Moreover, lower global crude oil prices, outflow of foreign funds, and depreciation in the Indian rupee also added to the downward trajectory.
The rupee weakened by 24 paise to 66.92 against a US dollar from its previous close of 66.68 to a greenback on Friday.
"Increased potential of a US rate hike dragged global markets lower. The Indian equity markets too opened on a negative note," Anand James, Chief Market Strategist at Geojit BNP Paribas Financial Services, told IANS.
"Lower crude oil prices and depreciation in the rupee also dented the Indian equity markets."
According to Dhruv Desai, Director and Chief Operating Officer of Tradebulls, while the CNX Nifty traded with negative bias throughout the trading session tracking bearish global cues and profit booking at higher levels, the Bank Nifty also faced selling pressure at higher levels.
"IT stocks managed to hold the early gains throughout the session on strong USD against INR. Banking, pharma and auto stocks witnessed selling pressure and failed to witness any recovery from lower levels," Desai said.
"Power and oil-gas stocks also traded down due to overall selling sentiments in most of the sectors. Aviation stocks got the support of lower crude oil prices and traded with sideways sentiments."
Desai added that firm USD/INR prices also pressurised the price movement of Nifty.
In terms of investments, provisional data with the exchanges showed that the foreign institutional investors (FIIs) sold stocks worth Rs 593.61 crore, whereas the domestic institutional investors (DIIs) divested scrip worth Rs 12.90 crore.
Sector-wise, the S&P BSE automobile index plunged by 595.71 points, followed by the banking index, which declined by 555.83 points, and the capital goods index fell by 500.89 points.
On the other hand, the S&P BSE IT index rose by 89.12 points, and the technology, entertainment and media (TECK) index gained by 14.46 points.
Major Sensex gainers during Monday's trade were: Infosys, up 1.74 per cent at Rs 1,054; Reliance Industries, up 0.28 per cent at Rs 1,046.60; Tata Consultancy Services (TCS), up 0.28 per cent at Rs 2,359.10; and Wipro, up 0.14 per cent at Rs 481.30.
Major Sensex losers were: Tata Steel, down 5.30 per cent at Rs 373.60; Adani Ports, down 4.37 per cent at Rs 259.60; State Bank of India (SBI), down 4.28 per cent at Rs 252.70; Larsen and Toubro (L&T), down 3.68 per cent at Rs 1,463.50; and NTPC, down 3.56 per cent at Rs 153.10.
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