Benchmark indices Sensex and Nifty declined in early trade on Tuesday after the US issued a draft notice over the implementation of an additional 25 per cent tariff on Indian imports.
Additionally, persistent foreign fund outflows and a weak trend in Asian markets also dampened sentiment.
The 30-share BSE Sensex tumbled 606.97 points or 0.74 per cent to 81,028.94 in early trade. The 50-share NSE Nifty went lower by 182.25 points or 0.73 per cent to 24,785.50.
From the Sensex firms, Sun Pharmaceutical, Tata Steel, Adani Ports, ICICI Bank, Bharti Airtel, Power Grid, Bharat Electronics Ltd, HDFC Bank, NTPC and Tata Motors were the laggards.
Hindustan Unilever and Tata Consultancy Services were the only gainers.
On Monday, the United States issued a draft order implementing an additional 25 per cent tariff on Indian imports, which President Donald Trump had announced earlier, beginning August 27.
According to the draft notice released by the Department of Homeland Security, the additional tariffs will cover Indian products "that are entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 am Eastern Daylight Time on August 27, 2025".
The notice explained that the higher levies were linked to "threats to the US by the government of the Russian Federation," with India targeted in line with that strategy.
"The biggest headwind for Indian markets remains whether Nifty can scale the 'Wall of Worry' around the 50 per cent Trump tariff set to kick in on August 27, which threatens to make almost all of India's USD 86.5 billion exports to the US commercially unviable," Prashanth Tapse, Senior VP (Research) at Mehta Equities Ltd, said.
Moreover, Tapse said, RBI Governor Sanjay Malhotra has assured policy action if US tariffs hurt domestic growth.
In Asian markets, Japan's Nikkei 225 index, South Korea's Kospi, and Hong Kong's Hang Seng were trading lower while Shanghai's SSE Composite index was quoted in positive territory.
US markets ended lower in overnight deals on Monday.
Foreign Institutional Investors offloaded equities worth Rs 2,466.24 crore on Monday, according to the exchange data.
"Despite sluggish earnings growth and headwinds like high tariffs, the market continues to be resilient. Resilient market co-existing with tepid earnings growth has made India the most expensive market in the world.
"Consequently, FIIs have been sustained sellers, but massive DII (Domestic Institutional Investor) buying, totally eclipsing FII selling, is supporting the market even amidst strong headwind," VK Vijayakumar, Chief Investment Strategist at Geojit Investments, said.
Since the principal reason for the market's resilience is liquidity and liquidity flows are likely to sustain, the market is unlikely to correct significantly, and the elevated valuations may continue, Vijayakumar added.
Global oil benchmark Brent crude was trading 0.48 per cent lower at USD 68.47 per barrel.
On Monday, the 30-share BSE Sensex climbed 329.06 points to settle at 81,635.91. The 50-share NSE Nifty rose by 97.65 points to close at 24,967.75.