Heightened nervousness was evident on Dalal Street from the sharp jump in the 'fear index' 'India VIX' which closed nearly 7 per cent higher.
The sharp sell-off that followed the jump in oil prices, resulted in the Sensex losing 642.22 points, or 1.73 per cent, to 36,481.09. The broader Nifty finished at 10,817.60, down 185.90 points.
The auto sector, already in the grip of a major sales downturn, lost the most on the exchanges. Hero MotoCorp, Tata Motors, Maruti Suzuki India and Bharat Forge Ltd fell in the range of 4 to 7 per cent. Subsequently, the Nifty Auto index finished nearly 4 per cent lower.
"Bank Nifty lost 800 points, which is its biggest decline since August 2019. The sell-off was so harsh that it did not allow any sector to close in the green. Despite weakness in the rupee, the technology sector also lost 0.60 per cent," said Shrikant S. Chouhan of Kotak Securities.
"Due to the sudden jump in 10 years GOI yield, bonds have compelled rate sensitive sectors to close lower. Nifty Auto, Reality and PSU bank stocks closed sharply lower," Chouhan added.
Brent crude on Tuesday afternoon, traded at $68 per barrel on the oil futures markets, up 11 per cent over Friday's close of $60.15 prevailing prior to the attack on Saudi oil facilities which resulted in their suspending production of 5.7 million barrels of crude oil per day.
India imports 83 per cent of the oil it consumes, and a recent report by Kotak Institutional Equities said that the sharp rise in international crude oil prices may require India "oil marketing companies (OMCs) to increase the retail price of diesel and gasoline by Rs 5 to 6 per litre in the following fortnight".
On Monday, the oil prices jumped to as much as $71 a barrel as investors reacted to the sudden loss of nearly 6 per cent of the world's daily oil production.
( With inputs from IANS )