The Nifty ended the day lower by 75 points in trade, while the Sensex closed lower by 239 points, as comments from L K Advani of a possible election this year saw selling pressure increase.
Among the top losers in trade were Bharti Airtel, Tata Motors, Bajaj Auto, NMDC, Bank of Baroda, Mahindra and Mahindra and Ambuja Cements.
Larsen and Toubro dropped despite being upgraded by a leading foreign brokerage firm and despite bagging orders from the Middle East.
Anil Dhirubhai Ambani group shares which rallied in the morning after RCOM entered into an agreement with a Reliance Industries subsidiary for sharing its optic fibre cables network, gave up gains and ended lower.
Nifty stocks that saw heavy selling pressure were from the auto and 2-wheeler space with Bajaj Auto dropping more then 3 per cent, while Hero Motor Corp hit a new 52-week low. Other auto stocks that fell were Tata Motors.
PSU banking stocks which had rallied in the last few days, also saw heavy selling pressure. Among the losers from the space were Bank of Baroda, Bank of India and Canara Bank.
Realty stocks also saw some selling pressure and ended the day lower with DLF Ltd and Godrej Properties being among the prominent losers from the space.
Meanwhile, markets in Europe were trading lower following worries over the political impasse in Italy. The Indian rupee dropped further by 14 paise and was trading at Rs 54.41 to the dollar as weak equity sentiments affected forex markets.