Financial markets globally reacted to the risk posed to Hong Kong's economy, home to global multi-national companies, by the anti-government mass protests.
Besides, global crackdown due to political uncertainty in Argentina and Italy also impacted the market.
Even the best-in-a-decade performance by Reliance Industries could not save the day for Sensex which closed 623 points lower. The country's second-largest company by market cap closed nearly 10 per cent higher on the BSE after it announced several investor-friendly deals and plans in its Annual General Meeting (AGM) on Monday.
Auto companies bled on Tuesday after the monthly sales data by Society of Indian Automobile Manufacturers (SIAM) showed continued stress on the industry.
The passenger vehicle sales for the month of July declined by 31 per cent while the sales of commercial vehicle a popular indicator of the health of the economy slipped by 25 per cent.
TVS Motors, Maruti Suzuki, Eitcher Motors, Mahindra and Mahindra, Bosch Limited, Bharat Forge Limited and Motherson Sumi Systems fell in the range of 5 to 8 per cent.
The Sensex tanked by 623.75 points or 1.66 per cent to 36,958.16 while the Nifty dropped by 183.80 points or 1.65 per cent to 10,925.85.
"Indian markets have been tagging-along global markets in palpable risk-off sentiment due to multiple challenges of intensification of US-China trade war, sell-off in Argentina and Hong Kong markets, said Jagannadham Thunuguntla of Centrum Broking Limited.
"Sell-off is all pervasive across the sectors fuelled by less-than-inspiring Indian corporate results and a weakening rupee," Thunuguntla added.
( With inputs from IANS )