Equity benchmark Sensex plummeted over 700 points to sink below the 74,000 level and Nifty retreated from a record high on Friday as investors pared exposure to telecom, capital goods and tech stocks.
Heavy selling pressure in Reliance Industries, L&T and HDFC bank counters also pulled indices down, traders said.
The 30-share BSE Sensex dropped 732.96 points or 0.98 per cent to settle at 73,878.15 after soaring 484.07 points earlier in the day.
From its intra-day high of 75,095.18, the benchmark tanked 1,627.45 points to the day's low of 73,467.73.
The NSE Nifty also declined 172.35 points or 0.76 per cent to 22,475.85.
The benchmark hit a record 22,794.70 in the early trade, up 146.5 points or 0.64 per cent.
From the Sensex basket, Larsen & Toubro, Maruti, Reliance Industries, Nestle, Bharti Airtel, UltraTech Cement, Kotak Mahindra Bank and JSW Steel were among the major laggards.
Bajaj Finance climbed nearly 1 per cent higher.
The Reserve Bank of India (RBI) has lifted restrictions on Bajaj Finance on sanctioning and disbursal of loans through eCOM and Insta EMI Card, the company said in a regulatory filing on Thursday.
In November last year, the central bank directed Bajaj Finance to stop sanction and disbursal of loans under its two lending products -- eCOM and Insta EMI Card -- due to the company's non-adherence to the extant provisions of digital lending guidelines.
Bajaj Finserv, Mahindra & Mahindra, State Bank of India, ICICI Bank and Infosys were among the other gainers.
"Profit-booking and a degree of caution ahead of the release of the US non-farm payroll resulted in selling pressure in the market.
"However, the absence of significant negative surprises in Q4 earnings thus far, along with a decline in oil prices, might help to mitigate the downside.
"Though the correction was broad-based, the large-cap stock was the key underperformer due to the moderation of FII's exposure to the domestic market," said Vinod Nair, head of research, Geojit Financial Services.
Foreign Institutional Investors (FIIs) offloaded equities worth Rs 964.47 crore on Thursday, according to exchange data.
In Asian markets, Hong Kong settled in the positive territory, while Seoul ended lower.
Markets in Tokyo and Shanghai were closed for the holidays.
Global oil benchmark Brent crude declined 0.06 per cent to $83.62 a barrel.
