The Sensex slumped 587 points or 1.6 per cent to close at 36,473, its lowest closing level since March 5 and the NSE Nifty 50 Index dropped 177 points or 1.6 per cent to settle at 10,741, its lowest level since February 20.

"The Indian market is down, when the region is largely flat, and US futures are flat. There are multiple reasons, firstly while the measures on FPI regulations are good, the market still awaits clarification on the tax proposals for FPI's made in the budget. Secondly the market is getting impatient with regards to the prospects of a stimulus package from the government and the comments made by some government officials have dimmed hopes. We continue to expect some weakness in the near term, but expect the economy to stabilize in Q2 FY2019-20 and recover in the second half," Vivek Ranjan Misra, head of fundamental research, Karvy Stock Broking said.

All but one sector gauges compiled by National Stock Exchange ended lower led by the Nifty Realty Index's 6 per cent plunge. Realty sector gauge fell after DLF shares collapsed 16 per cent to Rs 144.

The rupee also came under selling pressure and fell close to 72 per dollar after China's yuan fell to fresh 11-year lows on Thursday amid worries about the deepening Sino-US trade war, despite support from major state-owned banks in both the spot and forwards markets.

Nifty PSU Bank, Nifty Private Bank, Metal, Financial Services and Banking sector gauges also fell between 2 and 3.5 per cent each.

On the other hand, Nifty Information Technology index was top gainer, up 0.2 per cent.

Mid- and small-cap shares sharply underperformed their larger peers as the Nifty Midcap 100 Index tumbled 1.9 per cent and the Nifty Smallcap 100 Index plunged 2.8 per cent.

Yes Bank was top loser in the Nifty 50 basket of shares. The stock fell for fourth straight day and plunged 12 per cent to close at Rs 57.45. In the last four trading sessions the stock has dropped 29 per cent. Vedanta, Bajaj Finser, Indiabulls Housing Finance, Bajaj Finance, BPCL, Zee Entertainment and Coal India also fell between 4-8 per cent each.

On the flipside, Britannia Industries, Tech Mahindra, Dr. Reddy's Labs, TCS and Hindustan Unilever were among the notable gainers.