Analysts said that the sudden sell-off was triggered as funds started rebalancing the portfolio to realign with FTSE rebalancing.

Rahul Sharma, Market Strategist & Research Head, Equity99 Advisors, said: "We witnessed a sudden sell-off in the mid-trading session as funds started rebalancing the portfolio to realign with FTSE rebalancing."

He noted that, going forward developments on the US elections front will continue to dominate trading sentiments globally.

"Already, big traders are reducing their position in equity markets and shifting into currency trade where there is less risk than equity ahead of the US elections," he said.

The sell-off in the Indian market was led by the banking and finance stocks - the BSE Finance index closed 1.16 per cent lower and the BSE Banking index 1.13 per cent.

The BSE Sensex, which opened at the day's high of 39,200.42, closed at 38,845.82, lower by 134.03 points, or 0.34 per cent, from the previous close of 38,979.85.

The Nifty50 on the National Stock Exchange (NSE) closed at trading at 11,504.95, lower by 11.15 points, or 0.1 per cent, from its previous close of 11,516.10 points.

Manish Hathiramani, technical analyst with Deen Dayal Investments, said: "The markets continue to respect the 11,500 level which is heartening for the bulls. The key level to be respected is 11,300-11,350 and if we can manage that, we should be able to achieve 11,800 by the expiry next week."