Across-the-board selling on the last day of April series derivative contracts, MAT worries, disappointing Q4 results so far and sluggish global cues pulled down markets.
Participants were seen offloading their long positions in Futures and Options (F&O) segment instead of carrying them forward to the next May series, brokers said.
The BSE Index had closed at 26,908.82 on January 7.
The 50-share NSE Nifty tumbled below the 8,200-level by falling 58.25 points or 0.71 percent to close at 8,181.50. During the session, it moved between 8,229.40 and 8,144.75.
Meanwhile, the rupee fell by 45 paise to 63.75 levels (intra-day) against the US dollar on capital outflow worries.
Delay in land acquisition bill too hurt sentiment and accelerated selling by foreign investors.
The BSE 30-share barometer after resuming a shade higher at 27,242.05 fell back below the 27,000-mark and gradually moved down to a low of 26,897.54 before concluding at 27,011.31, a fall of 214.62 points or 0.79 percent.
The gauge had lost 170.45 points in yesterday's volatile session.
In Asia, markets mostly fell in line with an overnight sell-off in the US markets, after growth data fell well short of forecasts.
European markets were, however, trading a shade higher in early trade.
"The F&O expiry and other other negative factors including muted Q4 earnings have dampened market sentiments," said a Delhi-based stockbroker.
Market heavyweights like HDFC plunged 2.70 percent, Tata Steel fell 2.37 percent, M&M tumbled 2.25 percent, Tata Motors declined 2.21 percent, Tata Power lost 1.94 percent and Bharti Airtel 1.51 percent.
Other prominent losers were Coal India, Dr Reddy's, ITC, Hero MotoCorp, Hindalco, Hind Unilever, Infosys and SBI.
Shares of Jindal Steel & Power slumped 4.16 per scent to close at Rs 139.55 after CBI filed a chargesheet against company's owner Naveen Jindal in connection with a coal block allocation scam case.
Foreign Portfolio Investors sold shares worth Rs 718.31 crore yesterday as per provisional data.
Meanwhile, stocks of transport and logistics firm VRL made a stellar debut today by surging 43.07 percent to Rs 293.30 after climbing to Rs 309.10.
Stock markets will remain close on Friday on account of Maharashtra Day.