Markets closed off the day's low but Nifty's failure to hold the crucial support would be seen as a negative. The broader markets underperformed the benchmark indices today.
"There are no fresh triggers to take the markets to a higher level... A reversal on the benchmark indices means bigger losses in small and mid-cap stocks," Vivek Mavani, independent market analyst & portfolio manager told NDTV Profit.
The Sensex declined 47 points or 0.3 per cent to 17,632 while the Nifty ended 16 points lower at 5,335.
Metal stocks were the worst hit, weighed down by the sharp fall in commodity prices. The BSE metal index closed 2.4 per cent lower. Copper and aluminium producer Sterlite Industries was the top Nifty loser, down 5.4 per cent. Steel maker JSPL declined 4.9 per cent, while Aluminium maker Hindalco ended 3.1 per cent lower.
Capital goods and banking stocks were the other big laggards. Fears of further slowdown have resulted in a selloff in banks. India's June quarter GDP, expected on Friday, may come below 6 per cent.
In the January to March period, the economy grew at the slowest pace in nine years. Analysts have recently cut their growth estimates for FY13 to a decade low of around 5.5 per cent. There's also pessimism that the central bank will hold on to key rates despite headline inflation falling below the 7 per cent mark.
Private lender Axis Bank declined over 2 per cent while ICICI Bank ended 1.4 per cent lower.
IT stocks gained amid all the gloom and doom. TCS, India's biggest software services outsourcer, ended at the top of Nifty, rising 2.3 per cent. The stock has closed at a 52-week high. Wipro and Infosys also ended with gains.
State-run Power Grid was the top Nifty gainer, up 2.7 per cent.
Among other stocks, Federal Bank shed 3 per cent after HSBC sold nearly 5 per cent of its stake in a block deal. HCL Infosystems gained 20 per cent on a report that Lenova will acquire controlling stake in the firm. However, HCL Infosystems denied the report.
Only 18 of the 50 stocks closed higher on the Nifty. The market breadth was extremely weak, with only 24 per cent stocks managing to advance on the broader BSE 500 index.
Markets in Asia ended mostly lower. European stocks also traded in the red.