NDTV reported that Indian metal stocks were the biggest drag on markets, with the BSE metal index falling over 3.5% in intraday trade as compared to a 0.6% decline in the broader Sensex.

This is the second straight day of sharp cuts in metal stocks.

TATA Steel, the biggest loser on the Nifty, traded around 6% lower at INR 343, while Hindalco shares were down 4% at INR 117. Sesa Sterlite shares traded down 3.7% at INR 177.

The selloff in metal stocks came on rising fears of a slowdown in China. Dealers were especially nervous about iron ore prices following an 8% slide on Monday that fuelled unease about the health of China's giant steel sector.

Mr Bhavesh Chauhan of Angel Broking said that “Metal stocks have been hit due to a decline in global iron ore prices. The fall in iron ore prices would make Chinese steel makers more competitive impacting the profitability of Indian steel makers.”

HSBC said that domestic over capacity, falling iron ore prices and rupee appreciation are the main reasons behind the sharp fall in metal stocks. The brokerage is underweight on TATA Steel, Sail & JSW Steel.

The selloff in metal stocks comes at a time when the broader markets have rallied to record highs, partly on hopes of a stable government post elections due by May. However, the brokerage said that ferrous metals are no way to play stronger government prospects.

Domestic Brokerage Kotak said that domestic environment is better than global environment and domestic prices are likely to fare better than the international prices. However, it maintained its sell rating on JSW Steel and reduce rating on JSPL and TATA Steel.