Indian shares fell as much as 2 percent on Tuesday on worries about capital outflows as U.S. bond yields surged and the dollar strengthened, and as heavyweight Tata Motors, mired in a corporate power struggle, plunged after reporting weak earnings.
The Indian rupee fell against the dollar, hitting a level not seen since June 29, when it weakened in the aftermath of Britain's vote to leave the European Union. The greenback strengthened on expectations that President-elect Donald Trump's policies could boost inflation and guide U.S. interest rates higher.
In India, sentiment continued to be weighed down by the government's move last week to withdraw higher-denomination bank notes and slow replenishment in new bills.
"As a whole, the decline in markets have more to do with global factors like higher yields and a stronger dollar," said Neeraj Dewan, director at Quantum Securities, adding that India's action on bank notes was also impacting the market.
The broader NSE Nifty was down 1.38 percent at 8181.8 as of 0539 GMT, after falling as much as 2.14 percent earlier in the session.
The benchmark BSE Sensex declined 1.18 percent at 26,499.36. The index fell as much as 1.9 percent earlier in the session.
Both indexes were on track to post their second straight session of losses. Indian markets were closed on Monday for a public holiday.
Tata Motors shares slumped as much as 9.1 percent, hitting its lowest since July 7, after second-quarter profit missed estimates by a wide margin due to a weak performance at its Jaguar Land Rover unit.
Tata Motors was a major drag on the Nifty Auto index, which fell as much as 5.8 percent to its lowest since June 29.
Meanwhile, key banking stocks slumped, with ICICI Bank falling 2.5 percent and Axis Bank down 2.1 percent.
But, Bank of Baroda rose 9.4 percent, hitting its highest since Sept. 8, after saying its September-quarter profit rose more than fourfold.
(Reporting by Samantha Kareen Nair in Bengaluru; Editing by Amrutha Gayathri)