Equity benchmark indices dropped in line with Asian shares on Monday, a day after US President Donald Trump said he will increase US tariffs on 200 billion dollars worth of Chinese goods.
The S & P BSE Sensex tumbled 363 points to close at 38,600 while the Nifty 50 was down 114 points to 11,598.
Reports said China is considering cancelling this week's trade talks in Washington. US-China trade tensions are likely to take a toll on foreign capital flows into India and other emerging markets.
Adding to the nervousness was the start of the fifth phase of Lok Sabha elections. Investors were also concerned over the mixed set of numbers by large-cap majors.
Except IT, all sectoral indices at the National Stock Exchange were in the red.
In stocks, Tata Motors fell by more than 5 per cent following reports of phasing out of small diesel cars. Yes Bank too dropped by over 5 per cent after the rating agency ICRA downgraded its long-term ratings on the deterioration in the credit quality of large ticket borrowers.
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The share of grounded Jet Airways skidded nearly 5 per cent after reports said the government sees little hope of a bidder emerging for the debt-laden airline.
Tata Steel fell about 2.5 per cent on reports that the European Union is likely to block its merger with ThyssenKrupp AG.
Those which gained marginally were Bharat Petroleum Corporation, Indian Oil, Tata Consultancy Services, Tech Mahindra, and Bharti Airtel.
Meanwhile, all Asian markets were in the red after US President Donald Trump's threat to increase tariffs on Chinese imports cast a cloud over talks this week that was expected to finalise a trade deal.
China's shares tumbled more than 3.5 per cent when the market opened after a holiday. The country's equities are already under pressure amid concerns that government stimulus will not be as robust as many had anticipated.
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