Weak cues from global equities and selling pressure on financials and realty stocks too weighed on market mood here.
After cracking nearly 500 points, the 30-share Sensex pared some losses but ended 239.67 points, or 0.66 per cent, lower at 35,973.71. It hit a low of 35,714.16 and a high of 36,172.52.
The gauge surged 342 points in Monday's trade.
The 50-share Nifty also fell 44.80 points, or 0.41 per cent, to 10,835.30 after hovering between 10,729.30 and 10,888.75.
Losses were more pronounced in banking, realty and PSU counters.
"Indian indices traded lower mainly due to two factors – first, the indications of weakness from all major Asian markets since their opening; and second, the strike carried out by the Indian Air Force against terrorist camps located inside Pakistan," said Joseph Thomas, Head Research, Emkay Wealth Management.
While the former may be considered reflective of the evolving broader global perspective, the latter may have limited or transient impact on the market direction, he said, adding that markets may remain quite volatile in the coming days, especially, in the light of the fast approaching general elections.
The Indian Air Force struck Jaish-e-Mohammed's (JeM) biggest camp in Pakistan early Tuesday in a major "preemptive" action, killing a large number of terrorists and trainers of the Pak-based terror group preparing to carry out suicide attacks in India.
The move came 12 days after JeM carried out the Pulwama attack in Kashmir.
Meanwhile, the rupee which depreciated 38 paise to 71.35 against the US dollar in early trade, recovered partially to quote at 71.06 in late afternoon trade at the forex market, and was still trading 9 paise lower over its previous close of 70.97.
Among Sensex constituents, HCL Tech suffered the most by diving 2.26 per cent, followed by HDFC shedding 2.10 per cent.
Other big losers were ICICI Bank down 2.08 per cent, Infosys 1.75 per cent, SBI 1.44 per cent, Vedanta 1.20 per cent, Hero MotoCorp 1.15 per cent, RIL 1.01 per cent and L&T 1 per cent.
Also, Bharti Airtel fell 0.88 per cent, IndusInd Bank 0.79 per cent, HDFC Bank 0.72 per cent, ITC 0.65 per cent, Kotak Bank 0.44 per cent, ONGC 0.37 per cent, Maruti Suzuki 0.36 per cent, PowerGrid 0.36 per cent, Bajaj Finance 0.27 per cent, HUL 0.19 per cent, M&M 0.15 per cent, Tata Steel 0.14 per cent and Sun Pharma 0.03 per cent.
However, Bajaj Auto and Asian Paint managed to end in the green.
Shares of Hindustan Petroleum Corporation fell by 0.74 per cent after NSE said Britannia Industries will replace the oil marketing company in the Nifty50 index from March 29.
Shares of Britannia Industries, on the other hand, gained 0.95 per cent to ₹3,073.80 on the BSE.
In sectoral terms, the BSE realty index dropped 1.63 per cent, bankex (0.75 per cent), capital goods (0.69 per cent), FMCG (0.47 per cent), consumer durables (0.43 per cent), infrastructure (0.38 per cent), PSU (0.20 per cent), IT (0.16 per cent) and healthcare (0.13 per cent).
However, auto index topped the gainers list by rising 0.32 per cent, followed by oil & gas 0.18 per cent, power 0.10 per cent, metal 0.07 per cent, teck 0.04 per cent and power 0.02 per cent.
The broader markets were in a somewhat mixed shape with mid-cap index falling 0.27 per cent, while small-cap index rising 0.26 per cent.
Fresh round of selling by domestic institutional investors (DIIs) also dampened market sentiment here, brokers said.
DIIs sold shares worth ₹1,764.4 crore, while foreign portfolio investors (FPIs) bought shares worth a net of ₹2,134.35 crore on Monday, provisional data showed.
Elsewhere in Asia, Shanghai Composite Index declined 0.67 per cent, Hong Kong's Hang Seng fell 0.61 per cent, Japan's Nikkei shed 0.37 per cent, Korea's Kospi was down 0.32 per cent and Singapore Straits Times slipped 0.32 per cent.
In European markets, Frankfurt's DAX was down 0.49 per cent, and Paris CAC 40 dropped 0.42 per cent in their early session. London's FTSE declined 0.82 per cent.
The US Dow Jones Industrial Average, however, ended 0.23 per cent higher on Monday.
This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.