The BSE Sensex snapped a two-day rise and fell 1.2 percent on Thursday, led down by Reliance Industries and Housing Development Finance Corp, on weak global sentiment and lingering economic worries, but shipping companies bucked the trend.
Lower-than-expected inflation failed to bolster sentiment, with many banks falling as talk of more rate cuts were seen as hurting their profit margins because of their high-cost term deposits.
Shares in Tata Motors, India's largest vehicle maker, closed 2.8 percent lower at 131.50 rupees, after falling as much as 5.3 percent during trade, on reports the company had delayed payments to vendors.
Many automobile companies have been battling falling sales as a slowing economy has hurt consumer spending.
The 30-share BSE index closed down 1.21 percent, or 110.97 points, at 9,090.88, erasing more than three-quarters of the gains over the previous two days.
Deepak Jasani, head of retail research at HDFC Securities, said weak global markets added to the woes with little comfort seen for Indian companies in the near term.
"Our companies may continue to see pain for one more quarter before they return to better times," he said.
Twenty-two of the index components declined, while losers outpaced gainers in a ratio of 1.5:1 in the broader market on above average volume of 336 million shares.
"There are concerns with March approaching, there could be redemptions from offshore funds and hedge funds," said Ved Prakash Chaturvedi, managing director of Tata Asset Management.
