Sensex ends 134.91 points down at 28,709.87; Nifty falls 44.70 points at 8,712.05.
Benchmark indices ended lower for second consecutive trading session weighed down by selling pressure in financials, capital goods and oil shares.
However, buying in Bharti Airtel and auto shares limited the losses.
The 30-share Sensex ended down 134.91 points at 28709.87 and the 50-share Nifty ended down 44.70 points at 8,712.05.
Says Kunal Bothra, head - advisory, LKP Securities, “the level of 8650-8700 is a good support zone for Nifty, but the major and critical support lies at 8450. So from a medium term perspecitive, the view remains bullish, till the time Nifty remains above 8450. "
"We believe that in this correction the buying pattern suggests more inclination towards defensives, such as Pharma and select FMCG names, however, the key to market reversal would be the performance of private sector banks and large cap IT names.
I think, when these two sectors shows signs of short term bottoms, traders could build positions for a short term upswing," he added.
Among broader markets, BSE Midcap and Smallcap indices slipped between 0.3-0.4%. Market breadth on the BSE ended negative with 1,600 declines against 1,246 advances.
Further, factory growth probably lost more momentum in January while inflation remained below the Reserve Bank of India's target last month, bolstering chances of further interest rate cuts, a Reuters poll found.
The median forecast from the survey of 24 economists showed annual growth in industrial output slowed to 0.65% in January from December's 1.70%, its second straight month of easing.
On the currency front, the rupee weakened further by 25 paise to trade at a fresh two-month low of Rs 62.80 against the US dollar on Tuesday at the Interbank Foreign Exchange due to rise in the greenback's value against other currencies overseas.
Meanwhile, foreign portfolio investors (FPIs) bought shares worth a net Rs 838.30 crore yesterday, as per provisional data released by the stock exchanges.
Domestic institutional investors (DIIs) sold shares worth a net Rs 35.31 crore yesterday, as per provisional data.
Japan's Nikkei fell to a near two-week low in volatile trade on Tuesday, erasing earlier gains as banks were hit hard by a report saying the Basel Committee may ask banks to boost capital as a sufficient cushion in case of spikes in interest rates. The Nikkei ended 0.7% lower at 18,665.11, the lowest closing level since February 25.
In the morning session, the Nikkei rose to as high as 18,924.38.
The broader Topix fell 0.5% to 1,524.75 and the JPX-Nikkei Index 400 also shed 0.5% to 13,856.27.
LEADERS & LAGGARDS
BSE Realty index slumped nearly 2% followed by counters like Banks, Capital Goods, FMCG, Healthcare, Oil & gas, Power and Realty, all declining between 0.2-1%.
However, TECk, Consumer Durables, Metal and Auto sectors gained between 0.4-1%.
The main losers on the Sensex were HDFC, HUL, Hindalco, Sun Pharma, Tata Steel, Tata Power and NTPC. HDFC and HUL ended lower on account of profit taking after recent run-up in the share prices. Oil shares were also trading lower with Reliance Industries and ONGC down between 0.4-1.1% as global crude inventories begin to increase.
On the gaining side, Bharti Airtel surged over 7% on back of heavy volumes.
According to PTI reports, telecom major Bharti Airtel plans to double its 4G network by next fiscal as it gears up to take on competition, including the much-awaited foray of Mukesh Ambani-led Reliance Industries group.
Meanwhile, according to reports, the government is set to surpass its revenue estimates from the spectrum auction, as the assured revenue from the spectrum sale on Monday reached Rs 94,000 crore.
Idea Cellular, Reliance Communications and Tata Teleservices (Maharashtr) were the other telecom stocks that have rallied by up to 10%.
Other notable gainers included Coal India, Bajaj Auto, Hero, M&M and TCS. Tata Consultancy Services has been named as the top employer in Europe for the third consecutive year by a top employers certification agency, citing the Indian IT major as an "exceptional performer" in nine core human resources areas.
Auto stocks gained after a senior official of the Society of Indian Automobile Manufacturers said that demand revival is expected for the auto industry while heavy commercial vehicles have shown good improvement.
Shares of Lupin ended higher by 2% at Rs 1,901, after hitting a record high of Rs 1,917 on the National Stock Exchange (NSE) in otherwise weak market.
Theme park operator Adlabs Entertainment, which today hit the market with an IPO to raise Rs 400 crore, has allotted shares worth Rs 60 crore to anchor investors including funds operated by Daiwa, HDFC MF, Axis MF, IL&FS and L&T Mutual Fund.
Shares of MBL Infrastructures rallied 7% to Rs 621 in otherwise subdued market on the National Stock Exchange (NSE).
Time Technoplast rose 7% at Rs 54 after the Reserve Bank of India approved hike investment limit by Foreign Institutional Investors (FIIs)/Registered Foreign Portfolio Investors (RFPIs).
Shares of Persistent Systems dipped 9% to Rs 849 on the National Stock Exchange (NSE) after the stock turned ex-bonus today.
Shares of Monnet Ispat and Energy (MIEL) rallied 9% to Rs 71 on BSE on back of heavy volumes on media reports that the company is looking to sell some stake in its power generation subsidiary to fuel expansion plans and future growth.
Natco Pharma gained 6%, extending its previous day’s 2.5% gain on BSE, after the company announced that it has launched the first generic version of sofosbuvir in Nepal.