Rising interest rates and input costs also weighed on the market, as rate-sensitive auto and property stocks in particular were hit.
The benchmark 30-share Sensex index on the Bombay Stock Exchange fell 223.32 points to a day's low of 17,886.57, before recovering marginally to 17,943.47 but still down 0.92 percent.
India's top property firm DLF fell 3.49 percent or 7.49 rupees to 219.9 rupees while leading vehicle maker Tata Motors slid 2.79 percent or 26.9 rupees to 929.7.
The Sensex dip below 18,000 points marked a five-week-low and analysts assessed that the negative trend could continue.
"The bigger picture looks uncertain," said Hemen Kapadia, chief executive of investment advisory firm Chart Pundit.
"With the global scenario weak and India's pace of growth slackening, lower earnings and stocks downgrades seem a reality," he told AFP.
This week, a top Indian government advisory panel cut the growth forecast for Asia's third-largest economy from nine percent to 8.2 percent, citing the impact of a string of interest rate hikes and global uncertainty.
The central Reserve Bank of India last week hiked interest rates for the 11th time in 17 months to battle near double-digit inflation, which is the highest among major Asian economies.
Copyright AFP (Agence France-Presse), 2011