The 30-share Sensex closed down 162 points at 28,338 and the 50-share Nifty was down 67 points at 8,463.
Benchmark indices ended lower amid profit taking after they hit record all-time highs in the previous sessions.
Index heavyweight ITC witnessed selling pressure in late trades amid reports on ban of sale of loose cigarettes.
Analysts expect trading to be volatile in this week with traders rolling over positions in the futures & options (F&O) segment from November to December 2014 series on Thursday and data on second quarter Current Account Deficit and official second quarter GDP figures due later in the week.
The 30-share Sensex closed down 161 points at 28,338 and the 50-share Nifty was down 67 points at 8,463.
In the broader market, both BSE midcap and smallcap indices declined sharply and closed down by 1.4% and 2.4% each.
Shares of mid and small-sized companies listed on the the Bombay Stock Exchange (BSE) were under pressure on account of profit booking after sharp gains in the previous few sessions.
Market breadth ended highly negative with 2,156 declines against 837 advances. Meanwhile, foreign institutional investors were net buyers in Indian equities worth Rs 407.42 crore on Monday, as per provisional stock exchange data.
Reacting late to the surprise rate cut by China, Japanese shares edged higher on Tuesday.
The market was closed on Monday on account of national holiday. Strong buying in big names like Sony, Nissan and Panasonic brought Nikkei to an advance of around 0.3%.
Chinese shares closed mixed as analysts expect China to undertake further stimulus measures to revive growth.
Shanghai Composite index closed with gains of more than 1% while Hang Seng index was marginally down by 0.2% European markets are edging higher after opening on a weak note.
The warning by the head of the German Bundesbank about the legal hurdles the European Central Bank is likely to face if it went down the path of printing money to buy government bonds have raised doubts over European Central Bank’s ability to launch its own quantitative easing program to address growth concerns of Europe.
FTSE 100 and CAC 40 indices have gained 0.1% and 0.4% each while German DAX is up by 0.8%.
All the BSE sectoral indices except oil & gas and healthcare closed in red. BSE Realty index was the biggest loser with more than 3% of decline followed by BSE FMCG index with more than 2% of decline.
Other losers were BSE Metal, Power, Bank, Auto, Capital Goods and Consumer Durables indices with more than 1% of losses.
BHEL, closing up 2% was among the top gainers. BHEL gained on receiving a rating upgrade from Citigroup.
Further, in a clarification to BSE on the reports about the company setting up two power plants of Rs 3000 crore in Russia, the company said that the subject matter is only at a proposal stage and as such is not a price sensitive information.
HDFC twins closed with gains of more than 1%. HDFC Bank rebounded after a weak opening as today it was excluded from the MSCI and technical analysts had expected selling of around $250 million.
Bharti Airtel gained 1.2% on reports that the company has decided to sell more than 4,800 mobile phone masts in Nigeria to American Tower Corp for $1.05 billion to cut costs and pare debt.
Among pharma shares, Dr Reddys Lab and Sun Pharma closed with gains of 0.4% each.
Dr Reddys Lab announced today that it has launched the generic version of Taxotere, a docetaxel injection which is approved by the FDA for treatment of cancer, in the US market from 21st November, 2014.
Shares of most of the frontline banks closed lower between 1-4% on profit booking after rallying 20% in past one and half months.
Canara Bank, Bank of India, Federal Bank, Yes Bank, Punjab National Bank, Kotak Mahindra Bank, ICICI Bank and Bank of Baroda ended down between 2-4%, while State Bank of India (SBI), IndusInd Bank and Axis Bank closed down 1% each.
Today, Kotak Mahindra bank made an announcement about gaining approval from RBI to enter the General Insurance business.
Among losing stocks, ITC declined close to 6% on reports that accepting the recommendations of an expert panel the Health Ministry has decided to ban the sale of loose cigarettes.
“The Ministry has accepted the recommendations and a draft note for Cabinet has been circulated for consultation," said Health Minister JP Nadda in a written reply in the Rajya Sabha. Tata Power declined 1.5% ahead of Supreme Court hearing on the issue of compensatory tariff charged by Ultra Mega Power Projects (UMPP) operators Tata Power and Adani Group.
The decision of Appellate Tribunal of Electricity (APTEL) allowing Tata Power and Adani Power to charge higher rates from state utilities since March this year, on account of the rise in the cost of imported fuel was challenged by five states that purchase power from these plants.
Tata Motors declined more than 1% as it apparently failed to take benefit of the strong interest shown by buyers in its newly launched model 'Zest' and due to production roadblocks the waiting period for the model’s automated manual transmission (AMT) variant has soared to six months.
“After a long time we had a golden opportunity with the Zest but we may have missed it,” said Mayank Pareek, president-passenger vehicle business unit, Tata Motors.
Shares of Power Grid Corporation of India is closed lower by 3% extending its previous day’s 3% fall on BSE, after the Reserve Bank of India (RBI) put restrictions on further purchases of shares of the company by foreign investors.
Jindal Steel declined around 3% on cancelling a $10 billion coal-to-diesel project, becoming the first big casualty of a Supreme Court (SC) decision to scrap coalfields allocated to private firms since 1993.
Among other shares, Ricoh India has surged 5% after the company said it received an order worth of Rs 1,370 crore from Department of Posts, Government of India.