As a result, total investor wealth, measured in terms of cumulative market value of all listed stocks, tanked nearly Rs 1.79 lakh crore.
The rupee also took a sharp plunge of 96 paise (intra-day) against the US dollar to crash below the 68-level, but RBI intervention to infuse liquidity helped the local currency recoup some early losses.
Global markets went into a tizzy with Japan's Nikkei tumbling 7.92 per cent while Hong Kong's Hang Seng fell 2.92 per cent. European stocks was also trading lower with London Stock Exchange's FTSE index down 5 per cent after crashing 9 per cent in early deals.
Domestic stocks, which had plunged close to 1,100 points in early trade, recouped some of the losses on value-buying in pre-close session and talking-up by influential policymakers, including Finance Minister Arun Jaitley and RBI Governor Raghuram Rajan.
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However, value-buying in key bluechips, helped the index recover part of the lost ground to close the session 604.51 points or 2.24 per cent down at 26,397.71. This was the index's weakest closing since February 11.
The 50-share NSE Nifty, which cracked below 8,000-level to hit a low of 7,927.05 during the session, managed to recover part of the initial losses and settled 181.85 points or 2.20 per cent down at 8,088.60.
The fall was so widespread that 23 Sensex stocks closed in the red including Tata Motors, Tata Steel, L&T, ICICI Bank, ONGC, RIL, Axis Bank, SBI, TCS and Adani Ports crashing by up to 7.99 per cent.
Among BSE sectoral indices, realty suffered the most by 3.74 per cent followed by metal (3.59 pc), capital goods (3.30 pc), banking (2.69 pc), auto (2.63 pc), IT (2.13 pc), teck (2.01 pc) and oil&gas (1.82 pc).