"Indian currency surged to 71.98, Brent crude prices moved to $69 and 10-year yield was at 6.72. All these factors are dampening the economy and will be difficult to tackle in the short term," Shrikant S Chouhan, senior vice-president and equity technical research analyst at Kotak Securities was quoted as saying by news agency Press Trust of India (PTI).

Crude oil benchmark, Brent Futures, surged by almost 20 per cent to $71.95 per barrel (intra-day) on Monday after twin drone attacks on Saturday wiped out more than half of Saudi Arabia's crude supply.

However, Brent Futures on Tuesday saw some moderation and was trading at $68.07 per barrel, down 1.38 per cent over the previous close.

Heavy selling in domestic stock markets and sustained foreign fund outflows also weighed on the domestic currency, analysts said.

The S&P BSE Sensex index ended 642 points or 1.7 per cent lower at 36,481 and the NSE Nifty 50 index slumped 186 points or 1.7 per cent to close at 10,818.

Foreign institutional investors (FIIs) sold equities worth Rs 808.29 crore on Tuesday, provisional exchange data showed.

Market participants were also on edge awaiting cues from the upcoming trade talks between China and the US as well as a much-anticipated policy meeting of the Federal Reserve, scheduled to begin later in the day.

According to Arun Thukral, MD & CEO, Axis Securities, any spike in crude oil prices would impact India's oil import bill and trade deficit.

"Every dollar increase in the price of oil raises the import bill by around approximately $1.5 billion on an annual basis," Mr Thukral said.