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The benchmark BSE Sensex tumbled nearly 540 points tracking global sell-off amid concerns over slowdown in China and escalating tensions in West Asia.
The benchmark BSE index ended lower by 537.55 points or 2.05 per cent at 25,623.35, its biggest single-day percentage loss since September 22.
The broader NSE index fell 171.90 points or 2.16 per cent to 7,791.30, its biggest single-day percentage loss since September 1.
Selling activity was triggered as India’s manufacturing sector output contracted to a 27-month low in December. Also, rupee's weakness against the dollar and a surge in crude oil prices dampened the market mood.
Oil prices jumped as Saudi Arabia's execution of a prominent Shi'ite Muslim cleric at the weekend spurred regional anger and geopolitical tensions in the Middle East. Riyadh cut ties with Iran after protesters stormed the Saudi embassy in Tehran..
The Nikkei India Manufacturing PMI, a composite monthly indicator of manufacturing performance, dipped from 50.3 in November to 49.1 in December. The PMI has slipped below the crucial level of 50.0 for the first time since October 2013.
China's factory activity contracted for the 10th straight month in December and at a sharper pace than in November, a private survey showed, dampening hopes that the world's second-largest economy will enter 2016 on a more stable footing.
Meanwhile, China's benchmark CSI300 share index tumbled 7 per cent on the first session of 2016 on Monday, prompting the stock exchange to halt trading for the rest of the day.
Sectoral indices
All BSE sectoral indices ended significantly in the red. Among them, banking index fell the most by 2.59 per cent, followed by auto 2.12 per cent, capital goods 2.09 per cent and realty 2.03 per cent.
Gainers, losers
Top five Sensex losers were Tata Motors (-6.1%), Bharti Airtel (-4.1%), Adani Ports (-3.66%), BHEL (-3.45%) and HDFC (-3.26%), while the only three gainers were Wipro (+0.28%), HUL (+0.07%) and Asian Paints (+0.06%).
European shares fell sharply on Monday, the first day of trading for 2016, as weak Chinese economic data weighed on world stock markets.
Asian shares and currencies fell on Monday on the first day of trading in 2016 after China factory activity contracted and the yuan weakened, while oil prices jumped as much as 3 per cent on rising tensions in the Middle East.
A report by SMC Global said: "Asian stocks slumped with the region's high-yielding currencies as a worse-than-expected Chinese manufacturing report and escalating tension between Saudi Arabia and Iran saw investor shun riskier assets. US stocks dropped on the final trading day of 2015, with the S&P 500 losing 0.9 per cent to cap a 0.7 per cent annual drop. Investors in the world's biggest equity market will return from the New Year holiday to a swath of data this week, including gauges on the manufacturing and services industries, the monthly jobs report and minutes from the Federal Reserve meeting that ended with the first rate increase since 2006.The manufacturing sector in China contracted for a fifth straight month in December, the National Bureau of Statistics showed. The official manufacturing Purchasing Managers' Index or PMI came in at 49.7 in December, slightly better than 49.6 reported in November. A reading above 50 indicates expansion, while a reading below 50 represents contraction. The non-manufacturing PMI rose to 54.4, from 53.6 in November."
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