"There is some profit booking and rising crude prices also weighed on investor sentiment", said Akash Jain, vice president of equity research at Ajcon Global Services.
The benchmark BSE Sensex fell by 151.95 points or 0.46 percent to 33,218.81, while the broader Nifty index finished at 10,303.15, down 47 points or 0.45 percent from its previous close. Japan's Nikkei fell 0.4 per cent, though that followed a jump to its best close since 1992.
Indian equities have eased from record highs as strengthening oil prices have fuelled concerns about the possibility of a widening fiscal deficit and accelerating inflation in the oil-importing nation.
Smallcaps such as Elecon, Astra Micro, Shriram Transport Finance, MMTC, ESL and Aban plunged over 9 per cent to cause the BSE Smallcap index to end the day at 17,497.99, down 170 points or 0.96 per cent.
"Political disturbance in Saudi is triggering high volatility in the crude prices, which is negative for India leading to depreciation in INR".
The BSE Sensex closed lower by 360.43 points, or 1.07 per cent, at 33,370.76 points.
"Pharma stocks fell after Lupin said in a notice to the BSE that it got warning letter from U.S. food and Drug regulator for its Goa and Indore unit II plant". Ashok Leyland reported a gain of 13.5 percent in the net profit at Rs 334.2 crore against Rs 294.4 crore year on year for September quarter. The Nasdaq Composite slipped 0.27 per cent to 6,767.78.
Back home, the BSE healthcare index emerged as the worst performer, losing 3.51 per cent, followed by realty 2.24 per cent, consumer durables 2.03 per cent, PSU 1.92 per cent, power 1.81 per cent, metal 1.64 per cent, oil & gas 1.32 per cent, bankex 1.26 per cent, infrastructure 1.26 per cent and capital goods 1.11 per cent.
At 1 PM: Markets traded in red during afternoon trade.