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Marketmen said investors continued to lighten their commitments rather than rolling over to next derivatives contract beginning on February 1 after a disappointing monetary policy.
The market expected a cut in interest rates on the lines of the US Federal Reserve rate cut.
After a promising start, the 30-share BSE barometer gradually moved downwards to settle the day at 17,758.64, a net fall of 333.30 points, or 1.84 per cent, from last close of 18,091.94.
All refinery shares, including heavyweights Reliance Industries and ONGC, dropped sharply by 4.12 per cent and 4.94 per cent respectively on heavy selling even as the government decided to liberalise FDI norms in petroleum and natural gas towards the end of the trading session.
REL dipped by 5.44 per cent, ICICI Bank by 2.91 per cent, Hindustan Unilver by 5.14 per cent and Reliance Comm by 4.74 per cent.
The broad-based Nifty of the National Stock Exchange too fell by 113.20 points, or 2.14 per cent, to close at 5,167.60 from its last close of 5,280.80.
Analysts, however, anticipated increased foreign fund flows as the central bank kept rates steady while proposing controls on the inflows through broader measures.
Now all eyes are set on the Fed's meeting, which is expected to cut key rate by another 50 basis point.
The rollover to February series was very low a day ahead of the expiry of the derivatives contract, market participants said.
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