Bombay Stock Exchange's benchmark Sensex fell Tuesday by more than 145 points, or 1 percent, as the rupee tumbled to a record low of 55.39 against the dollar.
The Sensex began trading slightly higher than Monday's closing figure (16184.40) in the early morning trade but extended losses in the afternoon session as the fall in rupee and weak global cues weighed in.
The Sensex came close to breaching the key 16,000 level as it dropped to 16,002.16 shortly after 3 pm ISD, before closing advanced to 16,026.41 points.
National Stock Exchange Nifty lost 0.93 percent or 45.55 points to close at 4,860.50 Tuesday.
BSE Smallcap index and CNX Midcap were down 0.7 percent. The market breadth was negative as more number of shares (508) declined than the number of shares that advanced (891) on the NSE.
Except for the export-oriented Information Technology Co. shares, which benefit from fall in the rupee value, most shares declined in the afternoon trade session.
The State Bank of India, one of the major gainers in Monday's trade, lost more than 3.4 percent as it may recast Rs 3,700 crore loans given via consortium, according to a moneycontrol.com report.
Private lenders HDFC and ICICI Bank also went down by 1 percent.
The auto sector also bore the brunt of the falling rupee as carmaker Maruti Suzuki lost 4 percent while M&M, Hero Motocorp and Bajaj Auto were down 0.5 to 1 percent.
Other major losers were ITC, which slipped over 1 percent, Reliance Industries 0.6 percent, ONGC 0.9 percent and Larsen & Toubro by 2.5 percent.
The Reserve Bank of India intervened in the market to arrest the fall of rupee as it crossed the 55 per dollar limit Monday.
The RBI said in a notification that the positions in the exchanges (both Futures and Options) cannot be netted/offset by undertaking positions in the OTC market and vice-versa. The positions initiated in the exchanges shall be liquidated/closed in the exchanges only.
It also added that the position limit for the trading member AD Category-I bank in the exchanges for trading Currency Futures and Options shall be US$ 100 million or 15 per cent of the outstanding open interest, whichever is lower.
It also advised the banks dealing in foreign currency to bring down their trading limits by June's end.
The rupee gained in the morning trade and was at 54.60 against the dollar but tumbled to an all-time low of 55.35 against the dollar in the afternoon session.
Apart from the strong dollar globally, the foreign fund outflow and India's trade deficit also dragged the rupee down.