Benchmark 30-share Sensex index fell 0.48%, or 193.65 points, to 39,756.81 while Nifty 50 declined 0.5%, or 59.40 points, to 11,906.20.
BSE Realty (-1.94%), Information Technology (-1.55%), Capital Goods (-1.15%), Utilities (-1.12%) and Bankex (-1.01%) were the biggest losing sectors.
On NSE, Nifty Realty (-2.09%), Auto (-1.05%), Private Bank (-0.89%), Financial Services (-0.79%) and Pharma (-0.78%) were the worst performing sectors.
Meanwhile, Nifty FMCG (0.31%) and Metal (0.48%) were the only sectors which gained.
The broader market also remained under pressure as both the BSE Midcap and Smallcap indices tumbled 0.79% and 0.48% respectively.
Yes Bank, Maruti Suzuki, Tata Motors, Kotak Mahindra Bank and Hero MotoCorp were the biggest laggards among stock on Sensex plunging as 3.34%.
"Market retreated the winning streak as headwinds from global markets and concerns that CPI inflation may rise to seven months high in May impacted the momentum. Further, a steep fall of 21% in passenger vehicle sales added fuel to investors’ concerns over demand and liquidity crunch with NBFCs. Market to consolidate as long as there are no fresh triggers and await for more clarity on how NBFC related concerns pans out," said Vinod Nair, head of research at Geojit Financial Services.
Among Emerging markets, FTSE 100 fell 0.66%, CAC 40 declined 0.66%, DAX 0.4%, Nikkei 0.4% while Hang Seng 1.7%.
Investors await release of consumer price index-based inflation (CPI) and index of industrial production (IIP) data for further cues. According to Bloomberg analyst estimates, retail inflation for May is likely to be at 3.05%, up from 2.92% a month ago. IIP growth is seen at 0.8% in April against -0.1% in March.
Investors also await the Union Budget, which will be presented on 5 July, for the government’s fiscal deficit target and the borrowing calendar for 2019-20.
"Prime Minister Narendra Modi won a sweeping mandate in the recent parliamentary elections for a second five-year term. With political stability and policy continuity, the focus is on the policy choice ahead (near-term growth vs. macro stability)", said UBS India economist Tanvee Gupta Jain in a note to its investors.
"We expect monthly headline CPI inflation to remain below 4% YoY until Oct 2019 and average 3.7% YoY in FY20 (below the RBI's medium-term target of 4% YoY). Our estimates incorporate some modest pick-up in food inflation as prices normalise and assume crude oil prices (Brent) average US$67/bbl in FY20 (UBSe)." Tanvee added.
Yes Bank Ltd fell 3.3% to ₹134.65 after Moody’s Investors Service on Tuesday placed its Ba1 foreign currency issuer rating under review for a downgrade.
Indiabulls Housing Finance Ltd. was the worst performer among Nifty members for a second day, sliding 8%, after the mortgage lender denied allegations of taking kickbacks for loans.
Eros International Media Ltd. plunged by its 10% daily limit to a new low, taking its six-day slump to 50%. The debt rating of the Indian film-maker’s U.S.-listed parent was cut at Moody’s Investors Service yesterday.
Investors were also worried after fall in global stock markets due to President Donald Trump’s comments on Federal Reserve policy and trade negotiations with China.
Trump said he’s personally holding up a trade deal with China and won’t complete the agreement unless Beijing returns to terms negotiated early this year. In a separate tweet, he slammed the Fed for raising interest rates, saying the euro and other currencies were “devalued" against the dollar.
(Bloomberg contributed to this story)