The benchmark BSE index closed at its lowest level in over 1-1/2-years on Monday on the back of continued worries about Chinese equities.
But the Sensex and the Nifty pared their initial losses as European shares gained and as some investors saw domestic losses as overdone.
The BSE index ended down by 109.29 points or 0.44 per cent at 24,825.04 to mark its lowest close since June 4, 2014.
Similarly, the broader NSE index ended down by 37.05 points or 0.49 per cent at 7,563.85.
Barring realty and auto, all other BSE sectoral indices ended in the red. Among them, healthcare index fell the most by 1.37 per cent, followed by IT 1.1 per cent, TECk 1.06 per cent and PSU 0.98 per cent, while realty index was up 0.25 per cent and auto 0.1 per cent.
Top five Sensex losers were M&M (-3.4%), Wipro (-3.27%), Adani Ports (-3.13%), BHEL (-2.57%) and Dr Reddy's (-2.26%), while the major gainers were Reliance (+2.69%), Tata Motors (+2.04%), Maruti (+1.51%), NTPC (+1.47%) and ITC (+0.85%).
The benchmark BSE Sensex plunged over 335 points to hit a fresh 19-month low and the NSE Nifty crashed below the 7,500-mark in early trade today.
The NSE index has fallen 4.5 per cent so far this year, as turbulent markets in China have raised doubts about Beijing's ability to manage the world's second-biggest economy.
But analysts feel India's relatively stronger economic fundamentals will allow domestic markets to withstand shocks from China.
Instead investors are soon expected to shift focus to earnings, with Tata Consultancy Services due to kick off earnings on Tuesday.
"We're seeing some short-covering, but worries about China still exist. I'm not very optimistic about Q3 earnings, we could fall further," said Alex Mathews, head of research at Geojit BNP Paribas
A report by SMC Global said: "Asian stocks declined, with a regional measure falling to its lowest level in more than four years, as concern about China's growth outlook continued to fan a global sell-off. The Japanese market was shut for the day on account of Coming of Age (Adults') Day. US stocks closed about 1 per cent lower Friday, ending the year's first trading week with sharp losses as concerns about China and global economic slowdown persisted. Consumer credit in the US increased by less than expected in the month of November. The report said consumer credit climbed by $14.0 billion in November after rising by a downwardly revised $15.6 billion in October. Economists had expected credit to jump by $18.8 billion compared to the $16.0 billion increase originally reported for the previous month."
Meanwhile, foreign investors sold shares worth Rs 1,236.95 crore last Friday, as per provisional data.
World stocks fell to near 2-1/2 year lows on Monday as a fresh pounding for Chinese markets left Asia at a four-year trough and sent oil and commodity markets sprawling again.
Europe's main bourses saw a more steady start but investors were still shaky after a torrid session in Asia as doubts continued to mount about Beijing's ability to manage the world's second-biggest economy.