The BSE Sensex fell more than 1 percent to its lowest close in three months on Tuesday as blue chips such as ICICI Bank were hit by caution ahead of the 2013/14 budget, although mobile operators rallied on expectations of a cut in airwave auction prices.
The fall also tracked a sell-off in global equities after Italy's inconclusive election results revived euro zone concerns, sending the MSCI Asia-Pacific index outside Japan down 1.2 percent.
Shares in India's wagon manufacturers such as Titagarh Wagons Ltd
Investors are gearing up for the union budget on Thursday, the same day as the expiry of derivatives, which could magnify any volatility.
"Finance Minister is certainly going to show fiscal deficit at lower side. A roadmap to do away with subsidy business would be more important from markets perspective," said Deven Choksey, managing director of KR Choksey Securities.
The benchmark BSE Sensex fell 1.64 percent, or 316.55 points, to end at 19,015.14, marking its lowest close since November 27.
The broader Nifty fell 1.6 percent, or 93.40 points, to end at 5,761.25, posting a three-month closing low as well as the biggest daily fall since July 23, 2012.
Blue chip stocks were among the leading decliners as traders lightened positions ahead of the federal budget. India is also due to post its annual economic report on Wednesday, while final economic growth for the October-December quarter are due on Thursday.
ICICI Bank Ltd
Shares in India's wagon manufacturers declined after the 2013/14 railway budget did not result in any big investments as the government looks to keep spending in check.
Texmaco Rail and Engineering Ltd
Among other decliners, Ranbaxy Laboratories Ltd
Shares in Jet Airways Ltd
However, shares in Indian mobile network operators rallied with Bharti Airtel Ltd