Pharma stocks for a second day in row were performing better, being the only sectoral index to be in green.
Meanwhile, the rupee fell to four-month low amid FII outflows on expectation of rate hike by the US Federal Reserve loomed investors sentiment.
Besides, investors remained cautious about the government's plans for a stimulus programme which might lead to fiscal deficit. Sensex washed off 484 points to hit the day's low of 31,886.09 points, seeing its biggest percentage fall in over 10 months since 15 November 2016 - the demonetisation period.
Indian shares plunged the most in ten months on Friday as concerns over the nation's fiscal deficit and escalating tensions in North Korea prompted a selloff.
The Nifty50 had reclaimed that level on September 11.
"In view of the economic slowdown, the government is reported to be open to allowing the fiscal deficit to exceed this year's target as it considers a stimulus package in the range of Rs 40,000-50,000 crore by way of increased spending", Desai told IANS.More news: Apple's iOS 11 Helps iPads Catch Up With Ultrabooks, Surface Tablets
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The Indian stock markets which witnessed sluggish trading sessions over the entire week came down crashing after North Korea threatened to test a nuclear weapon in the Pacific.
Banking stocks were among the top laggards, with the S&P BSE Bankex index declining 1.9 percent.
The rupee also pared some initial losses in late morning deals to trade at 65.04, down by 23 paise against the dollar due to strong demand for the greenback from importers and banks.
Following extreme weakness in stocks, the market capitalisation of BSE-listed companies slumped Rs 2,68,853.7 crore to Rs 1,33,40,008 crore.
The rupee resumed lower at 64.95 per dollar as against yesterday's closing level of 64.81 per dollar at the Interbank Foreign Exchange (Forex) Market.
During the day, the rupee closed at 64.79-80 against the U.S. dollar.
Major Sensex gainers on Friday were: Wipro, up one per cent at Rs 294.05, and Coal India, up 0.12 per cent at Rs 253.90.