The benchmark BSE Sensex is down 1.7 per cent, while the broader Nifty falls nearly 2 per cent, hurt by a decline in shares of blue chip companies as foreign investors turned sellers for a seventh straight session as of Monday, 26 August.
The rupee approached a record low on Tuesday, further denting sentiment.
The Lok Sabha approval for a plan worth nearly $20 billion on Monday to provide cheap grain to the poor, which was also seen raising concerns about the country's fiscal deficit.
HDFC Bank is down 5.3 per cent, while ITC falls 1.3 per cent.
Traders remain wary about foreign flows after overseas investors sold about $810 million worth of shares in the previous seven sessions through Monday, ahead of June-quarter GDP data and the expiry of August derivatives contracts this week.
Falls also tracked lower Asian stocks after the US signalled possible military action against the Syrian government over a suspected chemical weapons attack.