The BSE Sensex dropped over 150 points, while the Nifty broke the Budget day lows after a muted start on Monday. The rupee traded near a two-month low, breaching the 55 mark to the dollar.
The Sensex traded 136 points or 0.72 per cent lower at 18,783, while the Nifty declined 48 points to 5,672 as of 10 a.m.
Global ratings agency Moody's said the Budget was credit positive for India's sovereign credit, but the statement did little to calm sentiments on the Street.
Indian markets fell sharply going into the Budget and the Sensex closed at three-month low on Thursday, when Finance Minister P Chidambaram announced his Budget.
Analysts have praised the Budget for not being populist ahead of an election year, but the absence of big bang reform announcements has weighed on sentiments. Uncertainty over certain tax provisions, that governs foreign investors, has also hurt sentiments, though the government has clarified these provisions through a press release and a series of conference calls with investors.
High beta metal and realty stocks led the declines, falling over 2 per cent. Power, capital goods and FMCG stocks also saw strong selling pressure. IT stocks saw some buying interest.
On the Nifty, state-run refiner BPCL was the top gainer, up 1 per cent, after petrol prices were hiked on Friday. IT stocks such as HCL Tech and Infosys also gained.
Market bellwether Reliance Industries pared gains after a strong start. The stock was upgraded to "outperform" by global investment bank Morgan Stanley.
42 stocks traded lower on the Nifty. Reliance Infra was the top loser, down 3.2 per cent, followed by two-wheeler major Bajaj Auto, which fell on weak February sales.
State-run power utility NHPC plunged 20 per cent to Rs 19.30.