The benchmark BSE Sensex dropped by 342 points or 0.98 per cent in late morning deals as investor sentiment weighed down by a sell off in global markets.
Investor caution continued after fear that the RBI may raise interest rates this week to rein in inflation concerns.
Capital Goods, Bank, Metal, Industrial, Finance, Basic Material, Consumer Durables, Realty and Auto sectors witnessed selling.
Telecom segment, however, witnessed good buying interest.
The 30-share Sensex was trading lower by 342.12 points, or 0.98 per cent, at 34,724.63 at 1110 hrs.
The broader Nifty was also trading below 10,700-level at 10,655.70, down by 104.90 points, or 0.97 per cent.
Major loser were HDFC 3.45 per cent, L&T 2.43 per cent, IndusndBank 2.33 per cent, Adani Ports 1.98 per cent and Bajaj-Auto 1.96 per cent.
Notable gainers were, Bharti Airtl 4.74 per cent, ITC 2.07 per cent, Tata Motors 2.03 per cent and PowerGrid 1.92 per cent.
Asian markets were lower following a sharp decline in US stocks. US stocks fell sharply last Friday on surging bond yields after a stronger-than-expected jobs report.
Foreign portfolio investors (FPIs) bought shares worth Rs 950.00 crore on net basis while domestic institutional investors (DIIs) sold equities to the tune of Rs 508.78 crore last Friday, provisional data showed.
Meanwhile, to soothe investors' nerves, the government said that the sell off in local stocks has been triggered by weak global cues and not by the long term capital gains tax imposed from February 1 onwards.
It also said that the LTCG tax was needed as t exempting such income from tax was inherently biased against manufacturing and encouraged diversion of investment to financial assets.
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