Meanwhile, the rupee retreated to 64.35/64.36 at 0455 GMT from its 64.07 close. It opened at Rs. 64.35 per dollar as against Rs. 64.06 on Monday. U.S. stocks tumbled yesterday, as interest rates headed higher amid concerns of returning inflation. Aside from the USA jobs data, the fact that bond yields have now risen to multi-year high has further fuelling fears of inflation.
At home, investors were also wary of the outcome of the monetary policy review on Wednesday.
All the 30 Sensex stocks were trading lower.
The rout in global equities deepened in Asia as inflation worries gripped financial markets, sending USA stock futures sinking further into the red after Wall Street suffered its biggest decline since 2011.
In the wake of Wall Street's biggest one-day decline since 2011, the crude oil futures also extended their slump.
Indian stock markets were already under pressure after the government re-introduced LTCG-tax on equities in Budget-2018.
Following the downfall, the total market capitalisation of BSE listed companies stood at Rs1,43,00,981 crore this morning, down from Rs1,47,95,747 crore on Monday.
"We expect the current correction in the mid- and small-cap stocks to continue and recommend investors to avoid building any fresh long positions".
In a move that could push inflation higher in coming months, finance minister Arun Jaitley increased government spending for rural areas and announced a larger fiscal deficit target in his annual budget speech last week.
Adding: "Indian market is performing in line with global in this down turn. There was only minimal disruption on Day 1", said Finance Secretary Hasmukh Adhia in a tweet.
Commenting on the market crash, Finance and Revenue Secretary Hasmukh Adhia said that the domestic market was mimicking weakness in global markets and it can not be attributed to LTCG tax levied in the Budget.
India's volatility index (VIX) surged 35.9 percent to 21.815, highest since November 23, 016. The index is a measure of the market's expectation of volatility over the near term. Shares of Lupin and Tata Motors incurred maxiumum losses among Nifty stocks, falling more than five percent. Tata Motors Ltd cracked almost 10% after it reported lower-than-expected earnings due to weak performance by Jaguar Land Rover (JLR).