The benchmark index ended lower by 94 points at 9291, after breaching the 9K levels in the intraday trade. Trading remained highly volatile as investors reacted to global developments.
The broader index Nifty ended at 2799, down 11 points.
“Volatility is a key concern at this stage and it is preventing long-term investors from increasing their exposure to equities. Investors fear that Sensex may crack 8000 levels again,” said Dipan Mehta, a member of BSE and NSE.
The Sensex opened on a positive note riding on the liquidity measures announced on Saturday by the Reserve Bank of India. But markets failed to hold on to the gains after it was confirmed that Japan slipped into a recession. Moving deeper into the red, the Sensex hit the day’s low of 8,956. However, a positive start by the European markets helped the benchmark index to recover from the day’s low.
Realty, banking, metal and capital goods stocks led the decline on the Sensex. The realty index on the BSE shed 5.2 per cent, with Sobha Developers and Anant Raj Industries losing more than 8.5 per cent each.
Among the Sensex scrips, HDFC Bank was the biggest loser. It fell 7.7 per cent to end at Rs 933. Reliance Infra, Tata Steel and DLF were the other major losers in the group.
Kingfisher Airlines galloped 6.6 per cent to Rs 28.15 on BSE, after chairman Vijay Mallya said it has spoken to the government to allow 25 per cent divestment in airline industry. Earlier, he said that the Kingfisher has been approached by many global airlines for a stake in the Indian airline.
“The Sensex may witness a rally soon. But if it closes below 8800 levels, then it may slip further to the 6300 mark,” said Ray Barros, CEO, Ray Barros Trading Group.
The BSE mid cap index slid 2.6 per cent while the small cap index dropped 2.7 per cent.
“Midcap stocks are likely to be more volatile as one is less sure of their earnings growth,” said IV Subramanium, Director, Quantum AMC.
Asian markets were mixed Monday as confirmation that Japan has slipped into recession emphasized the gloomy outlook for the world economy.
A weekend meeting of world leaders in Washington to discuss reform of the stricken global financial system provided a symbolic show of unity between rich and emerging nations but produced few concrete measures.
Japan's benchmark Nikkei 225 stock average edged up 60.19 points, or 0.7 percent, at 8,522.58 after trading as high as 8767.98 and Hong Kong's Hang Seng index gave up early gains to dip 0.1 percent to 13,529.53.
Mainland China's Shanghai Composite index rose 2.2 percent, but Australia's main index slid 2.5 percent.
"The case for investing in global equities is weak right now," said Andrew Yates, foreign institutional sales vice president at Asia Plus Securities in Bangkok.
"Trading volumes are very low. We don't have the big selling that we had before but then there is no significant buying either," he said. "Valuations are cheap but if you are a fund manager it's better to wait another six months before coming back into the market as valuations will still be low and by then you will have a clearer idea about what is happening in the world economy."
Investors seemed to react little to this past weekend's summit where leaders vowed to cooperate more closely and give bigger roles to fast-rising nations, but postponed many decisions until their next gathering in April.
T.J. Bond, a Merrill Lynch economist in Hong Kong, said some investors were disappointed there was no explicit announcement of coordinated fiscal stimulus measures.
Japan's economy, the world's second-largest, entered into a recession for the first time since 2001 as companies sharply cut back on spending in the third quarter, Tokyo said.
The economy shrank at an annual pace of 0.4 percent in the July-September quarter, meaning the country now joins the 15 nation euro-zone as officially in recession, defined as two straight quarters of contraction. The Organization for Economic Cooperation & Development, a club of rich nations, has said it expects the U.S. to slide into recession as well.
But with many companies having already announced significant downgrades to earnings forecasts, the Japanese market took the news of a second straight quarter of economic contraction in its stride.