The benchmark Sensex pared some of the early losses, but was still down over 396 points in afternoon trade on Monday, as selling pressure witnessed in key front-line stocks amid weak global cues.
Market sentiment also improved after the government moved a bill to propose bifurcation of Jammu and Kashmir, traders said.
After cracking over 700 points, the Sensex pared some losses to trade 396.85 points, or 1.07 per cent, lower at 36,721.37. It hit a low of 36,416.79 and a high of 36,844.05.
The NSE 50-share Nifty also recovered 128.00 points, or 1.16 per cent, to quote at 10,869.35.
In the Sensex pack, major losers in the Sensex pack include Yes Bank, Tata Motors, Vedanta, SBI, Tata Steel, Power Grid, ICICI Bank, ONGC, Reliance and Maruti.
However, TCS, Bajaj Auto, HeroMotoCorp, HUL, HDFC, Tech Mahindra, Bharti Airtel, and HCL Tech were trading higher.
The government on Monday moved a bill proposing bifurcation of the state of Jammu and Kashmir into two union territories -- Jammu and Kashmir division and Ladakh.
Making the announcement in the Rajya Sabha, Union Home Minister Amit Shah said the UT in Ladakh will have no legislature like Chandigarh while the other UT of Jammu and Kashmir will have a legislature like Delhi and Puducherry.
The rupee was trading down by 77 paise at 70.37 against the American currency in afternoon trade.
Foreign institutional investors (FIIs) remained net sellers in the capital markets, pulling out Rs 2,888.06 crore on Friday, as per provisional data.
The Reserve Bank will hold its three-day monetary policy meeting here, beginning Monday (August 5).
It is widely expected to cut the benchmark interest rate for the fourth time in a row to boost the economy at time when key indicators are pointing towards a slowdown, experts said.
Elsewhere in Asia, Shanghai Composite Index, Hang Seng, Nikkei and Kospi were trading in the red in their respective early sessions, following intensifying trade war between the US and China.
Equities on Wall Street too ended on a negative note on Friday last week.
Brent crude futures, the global oil benchmark, fell 1.50 per cent to USD 60.96 per barrel.
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