Market observers pointed out that heightened chances of a USA rate hike and fears over domestic economic contraction due to the government's demonetisation move spooked investors.
The rupee plunged to a fresh life-time low of 68.86 (intra-day) against the dollar by crashing 30 paise, surpassing its previous low of 68.85 tested on August 28, 2013.
Besides, the rupee trading at nearly six-month low against the dollar at 68.27 (intra-day) and an imminent hike in U.S. rate in December too forced participants to adopt a cautious stance.
In the morning, Sensex rebounded over 120 points and the NSE Nifty regained the 8,100-mark in the opening trade Monday on value-buying in select blue-chips amid a firming trend on other Asian bourses.
The market breadth turned positive as 1,457 stocks ended higher, 1,099 finished in red while 190 ruled steady.
Heightened chances of a USA rate hike, continued outflows of foreign funds and caution over the ongoing derivatives expiry dragged the Indian equity markets lower during the mid-afternoon trade session on Thursday.
The BSE mid-cap index provisionally fell 0.13 per cent, while the small-cap index dropped 0.11 per cent.
The Auto and Metals index witnessed massive recovery, closed up by 362 points and 266 points, respectivley.
In terms of investments, provisional data with exchanges showed that the FIIs sold stocks worth Rs 1,310.82 crore, whereas the domestic institutional investors (DIIs) purchased scrips worth Rs 1,211.01 crore.
The market remained highly volatile as traders were rolling positions to the next series as November series F&O contracts expired. However, IT rose by 1.23% and Teck 0.73%.
Major Sensex losers were: Tata Motors, down 3.89 per cent at Rs 453.05; Axis Bank, down 2.59 per cent at Rs 468; Sun Pharmaceuticals, down 2.49 per cent at Rs 683.60; Mahindra and Mahindra (M&M), down 2.41 per cent at Rs 1,164.50; and Gail, down 2.18 per cent at Rs 403.30.
While selling was seen in capital goods, utilities, power and realty segments.