Minutes before the closing bell, the Sensex was trading nearly 1,500 points lower with none of its 30 constituent stocks withstanding the carnage.
Uncertainty and panic among investors took the 'Fear Index' or India Vix higher by 30 per cet to 22.89. The intra-day jump in the 'VIX' was among the highest in recent past.
Relentless selling across stock markets comes as the number of coronavirus infection cases jumped even outside China, the epicentre of the outbreak.
Wall Street's benchmark index, Dow Jones Industrial Average closed (down 4 per cent) with record losses on Thursday.
The top losers in the Indian markets were Tech Mahindra, Tata Steel, Bajaj Finance, Mahindra and Mahindra followed by HCL Tech and SBI.
The biggest negative contributors of the decline in Sensex was Reliance Industries.
At 3.25 p.m., the Sensex was trading lower by 1,394.67 points or 3.51 per cent at 38,350.99 while the broader Nifty slipped 423 points or 3.64 per cent 11,210.30.
Santosh Meena, Senior Analyst, TradingBells said that the brutal fall on Dalal Street is reflecting the tension in global markets amid rising worries over the virus which has an overall toll of 2,788.
The momentum of new cases in China is coming down but the number of cases outside China are rising sharply.
China's Shanghai SE Composite Index was trading 3.71 per cent lower while Japan's Topix tumbled 3.6 per cent. Hong Kong's Hang Seng plummeted over 3 per cent.
Besides, the futures markets pointed at no near-term relief for the global markets. FTSE 100 Index Futures pointed at a rough start. The index was down 3.44 per cent, NASDAQ 100 Future also traded lower by 1.29 per cent.
Equity markets are falling sharply as fear of recession is rising where investors are looking for safe-haven instruments like Yen, US bonds and Gold, Meena said.
"It is still difficult to predict the extent and impact of coronavirus but the equity markets are in critical condition and they are looking for some positive triggers on the front of coronavirus for any kind of respite," Meena added.
The coronavirus (COVID-19) outbreak is likely to be declared a pandemic and focus is now shifting from China to South Korea, Iran, Italy and Japan -- where cases are escalating fast, even Germany, Brazil and several others have joined the list, a new report said on Friday.
The World Health Organization (WHO) has said that the coronavirus outbreak has reached a "decisive point" and has "pandemic potential" as the toll in China, the deadly disease's country of origin, increased to 2,788 on Friday.
"We are at a decisive point... For the past two days, the number of new cases reported in the rest of the world has exceeded the number of new cases in China," WHO chief Tedros Adhanom Ghebreyesus said.
The number of coronavirus cases in South Korea increased to 2,022 on Friday. Italy has confirmed 122 more coronavirus cases, bringing the total number of confirmed cases to 650.