 "Market investors become poorer by Rs 1.5 lakh cr")
Besides, a sharp 8% decline in Chinese stocks on worries that their economy is heading for a sharp slowdown added to the sell-off in domestic equities.
Total investor wealth of BSE-listed companies plummeted by Rs 1,50,994.8 crore to Rs 1,02,62,579 crore.
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The benchmark BSE Sensex slumped 550.93 points, or 1.96%, to settle at 27,561.38.
Today's closing was the lowest level since June 19, when the index had closed at 27,316.17.
Also, it is the second biggest single-day fall since the 660.61 points plunge on June 2.
Meanwhile, seeking to soothe jittery investors, the government today said it will not react in a "knee-jerk" manner to SIT recommendation on checking inflow of overseas investments via P-Notes, assuring that no action will be taken which adversely impacts the investment climate.
Finance Minister Arun Jaitley said a considered view will be taken on the Supreme-Court appointed Special Investigation Team (SIT) recommending stronger measures to identify owners of Participatory Notes (P-Notes) to check black money.
P-Notes are used by a large number of foreign investors to park funds in the equity market without disclosing their identity to the market regulator Sebi.
"Sentiments were downbeat mainly on reaction to proposals made by special investigation team (SIT) on black money to tighten rules on participatory notes.
"Besides, weak global cues ahead of Fed's two day policy meet beginning on Tuesday added to the negativity," said Jayant Manglik, President, Retail Distribution, Religare Securities.
Among the 30-Sensex constituents, 29 ended the day with losses, led by Tata Steel, Hero MotoCorp, Hindalco and Axis Bank.
Bajaj Auto was the sole gainer.
Sectorally, the BSE metal index fell the most, followed by capital goods, metal and banking.
At the BSE, 1,772 stocks declined, 1,066 advanced, while 87 stocks remained unchanged.