The BSE Sensex fell for a second consecutive session on Thursday, as companies seen most exposed to the global economy such as Hindalco Industries and Sesa Sterlite declined tracking a downturn in global markets.
Markets across the world remained weak on worries about global economic growth and the end of US stimulus.
Adding to the concerns, overseas investors sold a net $113 million on Tuesday, their third consecutive session of sales, raising fears they were turning more cautious about emerging markets after purchasing Indian shares through the year.
However, following exit polls after Maharashtra and Haryana elections, traders expect the ruling Bharatiya Janata Party (BJP) to form governments in the two states, giving a further push to Prime Minister Narendra Modi's reforms agenda.
The BJP is set to emerge as the largest party in the two state legislatures where it has traditionally been weak, exit polls showed.
"Today, the global cues were so bad and we have been seeing one-sided selling from overseas investors. However, we are expecting positive outcome from the two state elections, which will bring back some confidence among investors," said Suresh Parmar, head, institutional investors at KJMC Capital Markets.
The Sensex closed 1.33% lower or 349.99 points at 25,999.34, while the broader Nifty fell 1.47% to 7,748.20.
Markets were closed on Wednesday for state elections.
Metals and mining companies led the losses. Hindalco closed down 5.7% and Tata Steel ended 3.7% down on weak international prices. Sesa Sterlite closed 4.2% lower.
London copper hit a six-month low while iron ore futures DCIOcv1 in China and Singapore extended losses with mounting concerns over global growth.
Oil and gas explorers such as Oil and Natural Gas Corp ONGC.NS and Reliance Industries Ltd fell after international crude prices hit a four-year low.
Reliance fell 3.2%, while ONGC closed down 1.3%.
Sell-off was also seen in heavyweights as investors preferred to take profits. Larsen
& Toubro ended 1.1% lower and Bharat Heavy Electricals Ltd closed down 2.8%.
However, DLF Ltd rebounded and closed up 5.2%, on value-buying after slumping 28.6% to a record low on Tuesday after the securities regulator banned it from the capital markets for three years over violations related to disclosures for its 2007 listing.