The BSE Sensex fell more than 1.5 percent on Tuesday, dragged down by IT stocks after Tata Consultancy Services reported lower-than-expected quarterly earnings and said the outlook for pricing was tough.
Investor confidence was also dented by the prospect of foreign fund outflows after comments from the German finance minister against a quick-fix to Europe's debt problems.
By 11:04 a.m. (0534 GMT), the main 30-share BSE index was down 1.54 percent at 16,762.08 with 23 of its components declining.
The market needed a trigger which has come in the form of selling in the IT stocks as the market had moved up considerably in the last week, said S.P Tulsian, an independent consultant said.
Tata Consultancy, India's biggest software services exporter, fell as much as 8 percent, while rivals Infosys and Wipro shed 2 and 3.5 percent respectively.
TCS' second quarter missed across revenues, margins and net profits despite moderated expectations post the European turmoil, brokerage CLSA, which has an underperform rating on the stock, said in a note.
Tata Consultancy had posted a 14.7 percent rise in quarterly net profit and said late on Monday it does not expect to increase prices in the near term due to global economic uncertainty.
Shares in HCL Technologies, India's fourth largest software services firm, fell more than 7 percent as investors shrugged off a 50 percent jump quarterly profit and focused on a cloudy outlook for the sector amid slowing global growth.
India's showpiece $76 billion industry gets more than 90 percent of its revenue from providing technology services to overseas clients and counts the United States and Europe as its biggest markets.
Banking shares fell on worries over rising interest rates and slowing growth in Asia's third-largest economy, which have been eroding asset quality.
State Bank of India dropped 2.3 percent, while rival ICICI Bank fell 3 percent.
Expectations the RBI will raise rates next Tuesday when it reviews policy have gathered momentum after September inflation remained high.
The benchmark BSE index had risen 4 percent since the end of September, but is down 17 percent so far this year as rising rates have started biting into corporate profits and a series of government scandals have paralysed government policy making.
Leading motorcycle maker Hero MotoCorp was up 1 percent ahead of its results. A Reuters poll estimated quarterly profit to rise 11 percent.
STOCKS ON THE MOVE
* Mindtree Ltd rose 4.5 percent after it reported 58 percent jump in consolidated quarterly net profit.
* ING Vysya Bank rallied 6 percent after it reported a 53 percent rise in September quarter net profit.
* Mandhana Industries rose 3 percent after a top official told Reuters it does not expect a significant impact on revenues in the current fiscal year as the textile firm added a number of new clients.
MAIN TOP THREE BY VOLUME
* Jaypee Infra on 5.9 million shares
* Tata Motors on 5.53 million shares
* Jaiprakash Associates on 4.85 million shares