The Nifty also closed down 93 points, or 1.6%, at 5,761.
Concerns about a populist budget ahead of elections also hit sentiments, while a steep 216-point fall on Wall Street on Monday on concerns over Italian elections and looming spending cuts in the US added to the selling pressure.
On the domestic front, analysts said investors fear subsidy measures would challenge the government's fiscal discipline. "There is a concern that the food security bill will worsen the fiscal deficit," said Jagannathan Thunuguntla, research head, SMC Capital.
"Today's budget has been more disappointing from capital good stocks perspective," said Daljeet S Kohli, head of research, India Nivesh.