Sensex surrendered its intial gains to quote below the psychological 26,000-level, plunging over 300 points, and Nifty crashed below the key 8,000-mark due to heavy selling pressure amid mixed Asian cues.
Barring IT and Teck, sell-off was seen in most of the sectors led by realty, financials, banks, auto, industrials, basic materials, capital goods, consumer durables, FMCG, metal, power, utilities and healthcare.
Uncertainty reverted at stock momentum on sustained capital outflows in the midst of US interest rate hike worries and cash crunch over government demonetisation drive to curb black money hovered the sentiment.
The 30-share Sensex, resumed higher at 26,246.70 and hovered in a range of 26,270.28 and 25,798.62 before quoting 25,828.13 at 1100 hours, showing a drop of 322.11 points or 1.23 per cent from its last close.
The NSE 50-share Nifty was also fell 111.45 points or 1.38 percent to 7,962.65 at 1100 hours.
Major losers were, SBIN 3.74 per cent, Tata Steel 3.69 per cent, Adani Ports 3.26 per cent, M&M 3.03 per cent, HDFC 2.39 per cent and Tata Motors 2.23 per cent.
Meanwhile, foreign portfolio investors (FPIs) sold shares worth a net Rs 926.32 crs last Friday, as per provisional data released by the stock exchanges.
In overseas markets, Asian markets were trading mixed.
US stock market finished lower last Friday, but higher for the week as Wall Street heads into a holiday-shortened week when the focus will be on a slew of economic data and fresh scrutiny of a suddenly surging US dollar and rising interest rates.