Indian shares closed more than 3% lower on Tuesday, as a historic plunge in US oil prices due to a collapse in demand underscored the coronavirus pandemic's threat to the global economy.
US oil futures traded in negative territory on Tuesday, after plunging below zero for the first time in the previous session, on concerns that the sector will run out of storage for a glut caused by the coronavirus lockdown.
India, one of the world's top importers of oil, tends to benefit from lower oil prices, but Monday's crash spooked investors as it reflected the extent of the damage the coronavirus had on the global economy, analysts said.
"The terms of trade are decisively favouring crude oil importers, but the demand destruction due to the extended lockdown and worries about the effect of a staggered opening on aggregate demand have hit sentiment," said Ajay Bodke, chief executive and chief portfolio manager at Prabhudas Lilladher in Mumbai.
India extended the world's largest lockdown to early May to curb the virus spread, with the administration looking at a staggered exit from the shutdown for Asia's third-biggest economy.
Bodke said renewed worries of outflows from risk assets, like emerging market equities by foreign portfolio investors, due to rising insolvencies hitting corporates and financial intermediaries due to decline in oil is another headwind for India.
The Nifty Bank Index dropped 5.4% on its worst day so far this month.