Equity indices fell to low levels during the last hour of trading on Wednesday after the Reserve Bank of India (RBI) cut the repo rate by 35 bps at 5.4 per cent.
The central bank also cut its GDP growth forecast for FY 2019-20 by 10 basis points to 6.9 per cent from 7 per cent earlier.
At the closing bell, the BSE S & P Sensex was down 286 points or 0.77 per cent at 36,691 while the Nifty 50 edged lower by 93 points or 0.85 per cent to 10,856.
Except for IT, pharma and media, all sectoral indices at the National Stock Exchange were in the red. Nifty PSU banks was down 3.36 per cent, metal by 2.39 per cent, auto by 2.16 per cent and realty by 1.43 per cent.
Among stocks, Indiabulls Housing Finance plunged by 13.4 per cent to close at Rs 445.15 per share. Dewan Housing Finance Corporation closed 10.8 per cent lower at Rs 49.40 per share, a day after the beleaguered company said its new resolution plan to address asset-liability mismatch entails a moratorium on repayments.
Mahindra & Mahindra and Tata Steel were down by 5.9 per cent each while Tata Motors and Bharat Petroleum Corporation slipped 4.3 per cent each. State Bank of India, Eicher Motors, UPL, Vedanta and JSW Steel too suffered losses between 3 and 4 per cent each.
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However, Zee Entertainment, Cipla, Yes Bank, Hindustan Lever and Hero MotoCorp witnessed some gains.
Meanwhile, Asian shares fell for an eighth straight session on worries over the escalating US-China trade war. US President Donald Trump decided late last week to impose 10 per cent tariffs on the remaining 300 billion dollars of Chinese imports.
MSCI's broadest index of Asia Pacific shares outside Japan was down 0.2 per cent. Japan's Nikkei slid 0.3 per cent on worries that a stronger yen will put more pressure on its struggling exporters.
Shares in Shanghai were little changed after heavy selling in the previous sessions but Hong Kong's Hang Seng index was up 0.08 per cent.
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