Indian markets erased all the morning gains and closed marginally lower on Tuesday as crude oil gained for third session stocking concerns of higher fiscal slippage and inflation.

The benchmark S&P BSE Sensex dropped 0.21% to closed at 38,564.88, erasing an advance of as much as 0.5% earlier in the day. The NSE Nifty 50 Index fell 0.16% to end at 11,575.95 points.

Crude oil extended gains after leaping to a six-month high Monday as the Trump administration said it will no longer give any country a pass on sanctions barring purchases of Iranian supply.

"High oil is a key Achilles heel for the Indian economy, complicating its inflation, current account, fiscal balance and currency outlook", said Radhika Roa economist at DBS Bank.

"Concern is that high oil prices might pose a fresh risk to the fiscal math (if subsides return), by extension requiring higher borrowings. Also, pipeline inflation risks due to high oil prices further raise the hurdle for rate cuts. RBI minutes from the April meeting had already left the market divided - some see members as keeping the door open for rate cuts on worries over growth, whilst rest see the RBI cautious over inflationary risks", Rao added.

According to Choice Broking investors stayed cautious amid elevated crude prices, depreciating domestic currency and election uncertainty.

Maruti Suzuki India Ltd fell 3.6%. The company is expected to report a 6% fall in its March quarter earnings from a year earlier later this week, according to data compiled by Bloomberg.

Reliance Industries Ltd rose 1.4% to 1363.30 after ET Now reported that the company is in talks with Softbank's Vision Fund for Jio stake sale.

"From Jio valuation point of view, we believe while a potential stake sale would establish a value, we would need to see an equity sale of more than $5bn for a meaningful stock price reaction. A potentially smaller equity sale, which although would establish a larger equity value of Jio, would not be seen as a meaningful positive, in our view", said JP Morgan in a 23 April report.

"We also need to see what the potential stake sale would involve. More importantly, from a stock price perspective, we believe the potential investment would have to be an equity investment in Jio and not in the proposed InviT as that would be a quasi-debt investment", JP Morgan report added