The Sensex dropped 204 points, led by a sharp decline in public sector banking stocks, which were also affected by higher provisioning norms.The Nifty closed lower by 67 points.
PSU banking stocks like State Bank of India, Punjab National Bank, Canara Bank, Bank of Baroda, Oriental Bank and Union Bank plunged following the announcement of the Monetary Policy Review. Rate sensitives like real estate and auto stocks including DLF, Tata Motors and Mahindra and Mahindra also declined.
Infrastructure and capital good players saw large scale selling pressure with Larsen and Toubro, and Jaiprakash Associates dropping.
Among the Nifty stocks that gained ground were software stocks including TCS, Wipro and Infosys Technologies.
Shares of Colgate Palmolive gained after the company saw an increase in Q2 net profit to Rs 145 crores from Rs 99.5 crores.
S Kumars dropped sharply after its US arm filed voluntary petition for bankruptcy.
Meanwhile, shares in Europe were trading higher despite worries over the hurricane in the US. Markets in the US would be closed on Tuesday as well, after hurricane Sandy caused havoc across cities in the US.
Markets are expected to remain volatile and could see some more selling pressure after the RBI maintained status quo on repo rates.