The 30-share Sensex was down 191 points or 1.1% at 17,275 and the Nifty dropped 65 points or 1.2% to 5,253.
In the global markets, key European share indices such as the CAC-40, DAX and FTSE-100 were down 0.2%-0.6% each.
Asian markets were trading mixed. The Nikkei and Shanghai Composite were marginally up while the Hang Seng was down nearly 1%.
Among Sensex shares, index heavyweight Reliance Industries ended down 2.2% at Rs 755, extending its Friday's 3% fall, on reports that the output from the company's biggest gas fields in the KG-D6 block have touched a record low of 28 million standard cubic meters per day (mmscmd) as the company closed six wells due to water and sand ingress.
Software majors witnessed selling pressure with analysts citing rising concerns about weaker-than-expected Jan-Mar earnings and uncertainty about corporate IT spends in the year starting April. TCS is the top Sensex loser, down 3.9% at Rs 1,122 while Infosys was down 1.1% at Rs 2,833.
Bank shares lost ground for the third straight session after after the Reserve Bank of India, at it's credit policy meet last week, maintained a status-quo on key policy rates. ICICI Bank, HDFC Bank, SBI and HDFC ended down 1-3%
Capital goods shares were also among the top losers with majors such as BHEL ending down 4.8% at Rs 260 and L&T ended 1.8% lower at Rs 1,297.
However, FMCG majors continue to witness buying with ITC being the top Sensex gainer after the hike in excise on cigarettes was on expected lines. ITC gained 2% to end at Rs 220 and Hindustan Unilever ended up 0.7%.
Among other shares, Parekh Aluminex ended up 5% at Rs 322 on announcing acquisition of a USA based company American Foils Inc, which would strengthen the presence of the company in US continent. However, no financial details of the acquisition were provided.
Bicycle makers such as Atlas Cycle (Haryana), Tube Investments of India and Hercules Hoists ended higher by more than 3% each on second consecutive day in otherwise weak market, after the Union Budget 2012-13 bestowed additional pricing power to the Indian bicycle sector. Atlas gained 7.7% to end Rs 424 and Tube Investments rose
Standard Chartered PLC, the only company with depository receipts in India, surged 6% to end at Rs 100, extending its 20% rally on Friday, Budget Day, after the Finance Minister Pranab Mukherjee said it may allow two-way fungibility of Indian Depositary Receipts (IDRs).
The broader markets also ended lower. The BSE mid-cap index ended down 1.3% and the small-cap index closed 1.2% lower.
The overall breadth was negative with 1,867 stocks declined and 1,004 advanced.