Reuters Market Eye - The BSE Sensex falls 2.5 percent, while the broader Nifty is 2.6 percent lower, heading towards their biggest single-day percentage fall since February 27, 2012.
Bonds, shares and commodities fell sharply around the world on Thursday and the dollar rose after the U.S. Federal Reserve explicitly signalled an end to easy money and data showed China's economy slowing.
The rupee slumped to a record low on Thursday, while stocks and bonds were hit, after the Fed signalled a tapering of its monetary stimulus, highlighting the country's dependence on foreign capital inflows to fund its current account deficit.
Shares of large-cap private banks fall as traders fear that high foreign holding in these stocks makes them more vulnerable, as a sell-off after the Federal Reserve signalled an eventual end to free money.
ICICI Bank Ltd , with 37.94 percent FII holding, falls 4 percent, while HDFC Bank , where FIIs hold 34.07 percent of total shares, is down 3.9 percent.
Traders also worry an end to the U.S. monetary stimulus could lead to portfolio outflows, pushing the rupee lower and, in turn, delaying any rate cuts from the central bank.
(Reporting by Abhishek Vishnoi)