Benchmark indices continue to witness extreme selling pressure amid weak global cues, along with rupee hitting record low and slump in financials leading the downfall.
Also, concerns that passage of food security bill will weigh on country's fiscal and current account deficit further dampened the sentiment of investors.
The Lok Sabha approved a plan worth nearly $20 billion on Monday to provide cheap grain to the poor, a key part of the ruling Congress party's strategy to win re-election.
At 13:00 PM, the 30-share Sensex was down 431 points at 18,128 and the 50-share Nifty slipped 137 points at 5,340.
The market sentiment was also affected adversely by data showing that foreign funds remained net sellers of Indian stocks on Monday. Foreign institutional investors (FIIs) sold shares worth a net Rs 607.43 crore on Monday as per provisional data from the stock exchanges.
On the global front, Japan's Nikkei share average fell for a second straight day on Tuesday, taking its cues from weak Asian stock markets, with investors generally reluctant to trade actively ahead of potentially market-moving events in the coming weeks.
Investors are keeping their eyes on developments over Syria and waiting to get clarity on when the U.S. Federal Reserve will scale back its stimulus measures.
The benchmark Nikkei shed 0.7 per cent to 13,542.37 and the broader Topix dropped 0.5 per cent to 1,134.02, with 1.71 billion shares changing hands, the third-lowest this year.
Back home, the rupee breached the 65.56 per dollar mark on Tuesday to hit a record low, as a steep decline in the domestic share market following the approval of the food security bill in the lower house of parliament hurt sentiment.
The benchmark 10-year bond yield was trading up 13 basis points on the day at 8.47 per cent.
On the sectoral front, BSE Bankex has slumped by nearly 4% followed by counters like Capital Goods, FMCG, Consumer Durables, PSU, Realty, Metal, Auto and Power, all declining between 2-3%. However, BSE IT index has gained by nearly 1%.
Banking shares are under pressure on the bourses after the rupee once again weakened against the dollar in early trades on Tuesday due to month-end dollar demand.
YES Bank, HDFC Bank, IndusInd Bank, Axis Bank, Bank of India, Kotak Mahindra Bank and Bank of Baroda are down over 3% each on the Bombay Stock Exchange (BSE). Federal Bank, ICICI Bank, Canara Bank, Punjab National Bank and State Bank of India from public sector are down 3-7%. HDFC has declined by over 7% and is the top Sensex loser.
ITC has slipped nearly 5% to Rs 293 ahead of board meeting tomorrow to consider merger of the non-engineering business of subsidiary Wimco with itself.
Other notable losers are Coal India, BHEL, L&T, NTPC, Maruti Suzuki and HUL.
IT stocks have gained on hopes of better realisations as the rupee hit record low. TCS, Infosys and Wipro have gained between 1-2%.
Sesa Goa has moved higher by 5% at Rs 175, bouncing back nearly 11% from intra-day’s low, on inclusion in the 30-share benchmark S&P BSE Sensex from today.
The market breadth in BSE remains weak with 1,353 shares declining and 599 shares advancing.