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Indian shares surrendered early gains to end sharply lower on Tuesday, as HDFC Bank led a decline in financials, while Zee Entertainment plunged over 32% after its merger with Sony's India unit collapsed.

The blue-chip NSE Nifty 50 settled 1.54% lower at 21,238.80 points, while the S&P BSE Sensex lost 1.47% to 70,370.55.

The Nifty had risen by as much as 0.8% and the Sensex by 0.86%, earlier in the day, but succumbed to selling pressure that intensified late in the session.

HDFC Bank fell 3.5%, weighing the most on the benchmark Nifty index and extending to about 15% in its own losses since its disappointing results last week.

The continuous selling in HDFC Bank has now cascaded to other banking majors, which are weighing on the markets after disappointing results, said Ajit Mishra, SVP - Technical Research, Religare Broking.

Twelve of the 13 major sectoral indexes settled in the red, led by a 2% slide in financials, which have the most weight among the sectors.

The market also came under pressure due to "long-awaited corrections" in small- and mid-cap indexes, said Saurabh Jain, assistant vice president for research at SMC Global Securities.

The small-caps and mid-caps fell roughly 3% each. They have outperformed their larger peers so far this year, replicating their form from last year.

Among individual stocks, Zee Entertainment plunged more than 32% in their worst performance ever after the broadcaster's failed $10 billion merger with Sony's local unit.

Cipla hit a record high before ending 7% higher, the top gainer on the Nifty 50, after it beat quarterly profit estimates.