Forty three shares in the Nifty 50 basket were trading lower while in the 30-share Sensex basket, 25 stocks were struggling with losses.

The Sensex plunged 639 points or 1.7 per cent to 36,842 and the NSE Nifty 50 Index dropped 1.7 per cent or 154 points to 10,931.

All the 11 sector gauges compiled by National Stock Exchange were trading lower led by the Nifty media Index's 3.6 per cent fall. Nifty Metal, PSU Bank, Private Bank, Pharma, Information Technology, Financial Services and Bank sector gauges also dropped between 2 and 3.4 per cent each.

Analysts said that the commentary by the US central bank on Wednesday fell short of expectations of monetary easing in the global markets.

“Global markets were expecting a more dovish Fed and are disappointed by “mid cycle adjustment” this has led to a rise in the dollar. This is not good for emerging market equities like India," said Vivek Ranjan Misra, head of fundamental research at Karvy Stock Broking.

Overnight in the US, the Federal Reserve decided to lower borrowing costs for the first time since 2008 and move up plans to stop winnowing its massive bond holdings.

In a news conference after the release of the Federal Reserve's statement, Mr Powell characterised the rate cut as "a mid-cycle adjustment to policy", citing signs of a global slowdown, simmering US trade tensions and a desire to boost too-low inflation. (Read more on first US interest cut since 2008)

"For Indian equities, this is on top of the headwinds it has faced recently, like foreign institutional investors selling on account of tax proposals. There are other reasons as well, firstly the weakness in economy has not abated, as evident by the core sector data and auto sales,” Karvy Stock Broking's Mr Misra said. "We continue to believe that the economy should stabilize in second half of current financial year and the markets should be in better shape in a couple of quarters."

Foreign institutional investors (FIIs) pulled out a net Rs 12,418.73 crore ($1,803.9 million) out of Indian equities in July, data from NSDL showed.