Banks were among the top losers along with select index heavyweights while IT shares trimmed early gains.
Markets have closed lower amid a sell-off in late trades tracking weak European cues while weak US stock futures also hinted a lower opening on Wall Street later today .
Further, traders have turned cautious ahead of the expiry of September derivative contracts on Thursday.
The 30-share Sensex closed lower by 541.14 points at 25,651.84 and the 50-share Nifty dipped 165.10 points at 7,812.
The Nifty pierced the psychological 8,000 level in early trade. The Volatility index surged by almost 12% at 20.3450 levels.
The broader markets were weak in line with the benchmark indices- BSE Midcap and Smallcap indices plunged 1.6%.
The market breadth ended negative on the BSE with 1,699 losers and 978 gainers.
In the currency front, the Indian rupee was trading at 65.85 to the US dollar down by 20 paise.
Further, the Asian Development Bank (ADB) today lowered growth projections for India for the current fiscal to 7.4 per cent, from the 7.8 per cent earlier, citing weak monsoon, poor external demand and inability of the government to push economic reforms in Parliament.
According to K.Subramanyam, Co-Head Equity Advisory, Altamount Capital: “The sudden sell-off in the market in today's trade has taken it to 7800 levels.
The state of the market remains vulnerable as global factors have cropped up every now and then and spooked sentiments.
However, investors should use these opportunities to buy into companies with good growth prospects like media, logistics, select pharma and IT companies and select PSU banks.”
Adding: "The market is betting on a rate cut from RBI which could be in excess of 25 bps considering the beginning of the festive season which could boost consumer demand. Most of the factors are supportive for the same but the festive season could be a trigger."
European shares fell on Tuesday, led lower by miners as copper prices slid on worries over Chinese demand, while the dollar hit its highest in almost two weeks after Federal Reserve officials signaled US interest rates could still rise this year.
The US central bank held policy steady last week, citing risks to global growth.
But Atlanta Fed President Dennis Lockhart said on Monday he still expected rates would rise this year while St. Louis Fed chief James Bullard said there was a chance of a hike next month.
By contrast, European Central Bank officials have been stressing monetary policy in the euro zone will remain loose for some time. Governing Council member Ewald Nowotny said on Monday ECB rates would stay low as long as growth did.
The pan-European FTSE 300 stocks index fell 1.6%. An index of mining shares SXPP dropped 3.8% after copper CMCU3 retreated 2.1%.
China stocks rebounded for the second day on Tuesday, in a further sign of improving investor sentiment that may help the market gradually stabilise after the rout since mid-June.
The CSI300 index of the largest listed companies in Shanghai and Shenzhen rose 0.9%, to 3,339.03, while the Shanghai Composite Index gained 0.9%, to 3,185.62 points.
SECTORS & STOCKS
Rate-sensitive sectors like banks, realty and auto witnessed heavy selling pressure ahead of the RBI Monetary policy which is scheduled on September 29.
According to SBI Research, benign food inflation, sufficient transmission of policy rates and the spread of monsoon makes a case for at least 25 basis points (bps) cut in repo rate by the Reserve Bank.
From the financial space, Axis Bank, HDFC, SBI, ICICI Bank and HDFC Bank plunged between 2-3%. Among auto segment, Tata Motors, Bajaj Auto and Hero Moto dipped between 1-3%.
Metal shares also reeled under extreme selling pressure. Vedanta, Coal India, Hindalco and Tata Steel plummeted between 3-6%.
State-owned NTPC is set to issue Rs 700 crore of tax-free bonds – 40% will be for retail investors. The issue will open on Wednesday. The stock slipped by almost 5%.
Shares of Infosys gained almost 1% after the company secured a three-year contract to develop and maintain all global web-based properties of not for profit enterprise TOMS Shoes for an undisclosed sum.
Shares of Mindtree gained nearly 4% after the company announced that it was selected by Molnlycke Healthcare to effectively manage its business operations using SAP application suite.
Motherson Sumi cracked almost 8% after German carmaker Volkswagen, its client, admitted that it had falsified emissions tests of diesel-powered vehicles in the United States.
Amtek Auto tumbled over 11% on reports that the company has missed payments to the tune of Rs 800 crore on its bonds that matured on Monday.