The S&P BSE Sensex slumped by 256 points on Friday, as both the domestic and global factors weighed on the investors' sentiment.

The Sensex closed at 25,610 points, down 0.99%, while the 50-share Nifty fell 62 points, or 0.80%, to end at 7,762.

Domestically, data released on Thursday showed that inflation rose for the third consecutive month in October, largely due to rise in food prices.

"The auspicious start of Muhurat trading session on Wednesday failed to follow through as the Indian equity market resumed its south-bound journey on Friday. Indices slipped sharply after retail inflation rose to a 4-month high of 5% in October compared with 4.41% in September this year and 4.62% in October 2014," said Amar Ambani, Head of Research, IIFL.

The sharp rise in inflation is likely to reduce the scope for the Reserve Bank of India (RBI) to cut lending rates further to boost the country's economic growth.The central bank had cut the repo rate by 125bps so far this year, taking comfort in easing inflation before it started moving upwards.

Separately, the official data showed that industrial activity in the country rose lower-than-expected at 3.6% in September, indicating that the manufacturing still struggling to gain momentum.

"In addition, the underlying economic activity remains weak on account of the sustained decline in exports, rainfall deficiency and weaker than expected momentum in industrial production and investment activity," said Ambani.

Domestic stock markets also ended sharply lower on the back of growing indications of US Federal Reserve interest rate hike in December. The robust US employment data released last week further intensified worries over monetary tightening in the US, which could trigger heavy outflows from emerging markets like India.

The sell-off was also led by falling commodity prices globally, which fell to multi-year lows on concerns that a slowdown in global economy could lead to oversupply. Crude oil prices fell to over 2-month lows following a rise in US oil inventories.

"The oversupply is also causing stock levels to rise outside the US: according to OPEC, OECD stock levels currently deviate from the five-year average by 210 million barrels, meaning that the overhang is in fact bigger than even during the economic and financial crisis in early 2009," said Commerzbank Corporates & Markets in a note.

Following a slump in commodity prices, the China's Shanghai Composite index closed 1.4% lower, whike Hong Kong's Hang Seng was down 3.2%.

Meanwhile, Capital Goods, Auto, FMCG, IT and Reality were the top losers among BSE sectoral indices. Banking stocks also came under pressure following the uptick in inflation to five-month high in October and industrial production falling to four-month low in September.