Shares ended around two-month lows on Wednesday, with banks, energy and metal companies posting losses, as fears of a global recession dented risk sentiment.
The NSE Nifty 50 index fell 0.9% to 16,858.60, while the S&P BSE Sensex closed down 0.9% to 56,598.28. Both the indexes have fallen for a sixth straight session, posting their longest losing streak since mid-June.
Global shares sank to two-year lows on Wednesday, as surging borrowing costs and a worsening energy crisis intensified fears that the world could tip into recession.
Rising interest rates and bond yields had raised the investment barrier for equities, said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services.
Meanwhile, fear of recession because of "very high" interest rates, was adding pressure, he said.
Foreign institutional investors sold a net 28.24 billion Indian rupees ($345.63 million) of Indian equities on Tuesday, while domestic investors purchased 35.05 billion rupees shares, as per provisional data available with the National Stock Exchange.
"Overseas investors would not be interested in coming back to the markets at this point of time unless the currency stabilises," said Joseph Thomas, head of research, Emkay Wealth Management.
"We need to see the trajectory of U.S. interest rates from the current aggressive approach moderate over the next 2-3 quarters, also need to see the direction of the Indian monetary policy and some stability in the currency."
The Nifty and Sensex are down about 3% so far this year.
Meanwhile, investors await monetary policy decision from the Reserve Bank of India on Friday.
Ahead of the RBI policy outcome, markets will take precautionary positions, Khemka added.
The metals index was down 1.9%, while the bank index dropped 1.6% and energy index dropped 1.6%.
Asian Paints was the top gainer in Nifty 50 index, rising 2.9%, while Hindalco was the top loser, falling 3.4%.