The 30-share BSE index ended 309.77 points lower at 18,411.62 points, with 28 of its components losing ground.
Software services bellwether Infosys dragged the index down, falling as much as 5.96 percent after its quarterly earnings missed expectations.
India's No. 2 software services exporter reported a 15.4 percent rise in first-quarter profit and warned it faces a volatile global economy and a possible slowdown in client spending.
Rivals Tata Consultancy Services and Wipro also slipped 0.98 and 1.5 percent, respectively. "There were a number of concerns today. Infosys numbers were lower than expected, guidance was conservative and this has showed that uncertainties around the globe still exist. In addition to this, the European crisis added to worries and IIP data also came in below expectations," K.K. Mital, head of portfolio management services at Globe Capital, said.
Euro zone finance ministers on Monday promised cheaper loans, longer maturities and a more flexible rescue fund to help Greece and other EU debtors in a bid to stop financial contagion engulfing Italy and Spain.
India's industrial output in May rose at a much slower-than-expected pace, indicating taut monetary policy and high inflation were acting as brakes on the economy, although the central bank is still expected to raise rates later this month to contain stubbornly high inflation.
The annual 5.6 percent growth in production at factories, mines and utilities was its slowest in nine months under a new data series, well below the forecast for an 8.2 percent rise in a Reuters' poll.
"The cabinet reshuffle, although minor, is a welcome move for the market as it was long overdue and has finally happened," Mital added.
Indian Prime Minister Manmohan Singh retained key allies in a cabinet reshuffle on Tuesday, shunning big changes in a bid to hold onto power amid charges of graft and policy paralysis.
Leading lenders State Bank of India , ICICI Bank and HDFC Bank fell between 0.7 and 1.77 percent as concerns remained on hardening interest rates and slowing economic growth. The broader banking index closed 1.04 percent lower.
Auto stocks including Maruti Suzuki , Tata Motors and Mahindra and Mahindra dropped between 1.43 and 3.22 percent on worries over slowing sales, after India's car sales grew only 1.6 in June, the slowest in more than two years.
The 50-share Nifty index fell 1.6 percent to 5,526.15 points.
In the broader market, 1,063 losers beat 368 gainers on a volume of about 527.19 million shares.
The MSCI world equity index was down 0.91 percent by 1026 GMT, while the Thomson Reuters global stock index dropped 1 percent.
STOCKS THAT MOVED
Thomas Cook fell 3.19 percent after its British parent said its full-year profit would be lower-than-expected due to unrest in the Middle East and North Africa and tough trading conditions in Britain.
Capital goods stocks were lower after the industrial output data. Bharat Heavy Electricals , Larsen & Toubro, Suzlon Energy and Punj Lloyd ended down between 1.2 percent and 3.5 percent.
Madras Cements rose nearly 3 percent after the Times of India newspaper reported the company was in talks with Lafarge and Holcim to divest its cement grinding unit.
TOP 3 BY VOLUME
Unitech on 22.49 million shares
Lanco Infratech on 18.34 million shares
Suzlon Energy on 13.4 million shares
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