The Sensex has fallen nearly 450 points or 2.3 per cent in the last five sessions.
Marketmen said interest rate sensitive banking and realty stocks took a beating as investors feared imminent rate hike by the Reserve Bank of India (RBI) to rein in inflation.
Capital goods, consumer durables, metals and PSU stocks were the other major losers of the day ahead of RBI meeting next week.
Investor sentiment has already been hit by companies posting below-expected earnings for the fourth quarter (Q4) ended March, against the backdrop of high inflation and interest rates.
Soaring oil prices have further fanned concerns of higher inflation. India imports over 70 per cent of its crude oil needs, which impacts prices across the economy.
Although crude prices eased a little after Q1 GDP numbers in the US showed a decline, coupled with higher jobless claims, they still remain very high.
New York`s main contract for June is ruling at above USD 112 per barrel, while London`s Brent North Sea crude is still close to USD 125.
FIIs sold shares worth Rs 832.59 crore yesterday as per the provisional figures issued by stock exchanges.
The 30-share Bombay Stock Exchange barometer opened higher at 19,292.57 from last close and moved in the range of 19,356.50 and 19,015.05 before settling at 19,135.96, down 156.06 points or 0.81 per cent.
The NSE 50-share nifty also ended lower by 35.95 points or or 0.62 per cent to 5,749.50.
"Banking stocks dragged the market down. Interest rate sensitive sectors like realty and capital goods continued to be under pressure. Fertiliser stocks witnessed profit booking," Bonanza Portfolio Limited Senior Research Analyst (Equity) Shanu Goel said.
Meanwhile, IIFL Head of Research (India Private Client) Amar Ambani said, "There is a lack of catalyst to lift the market out of the current range. One has to see how they approach the market in May."
Meanwhile, European markets edged lower in early trade, snapping a 6-session winning streak, with investors taking profits from eight-week highs. The key benchmark indices in France and Germany were down 0.34 per cent and 0.09 per cent.
Markets closed in London for the Royal Wedding holiday.
Asian stocks ended lower on slowdown in the US economy.
The key benchmark indices in Singapore, South Korea, Taiwan and Hong Kong slipped by between 0.36 per cent and 0.72 per cent, while China`s Shanghai Composite rose 0.87 per cent.
Japanese markets were closed for a public holiday.
Major losers from the Sensex pack were Larsen (3.87 pc), ONGC (2.79 pc), Jindal Steel (2.71 pc), Jaiprakash Asso (2.57 pc), DLF (2.37 pc), Bharti Airtel (2.06 pc), HDFC Bank (1.98 pc), SBI (1.87 pc), M&M (1.80 pc), Hindalco (1.49 pc) HDFC (1.35 pc) and Sterlite Ind (1.07 pc)
However, HUL shot up 2.24 per cent, followed by Maruti Suzuki 1.27 per cent and Reliance Industries 0.83 per cent.
Among the sectoral indices, the BSE-Capital Goods fell by 2.72 per cent followed by BSE-Realty - 2.66 per cent, Bankex - 1.76 per cent, BSE-CD - 1.30 per cent, BSE-Metal - 1.21 per cent and BSE-PSU - 1.04 per cent.
Small-cap and Mid-cap indices were also finished lower by 1.57 per cent and 1.03 per cent respectively.
The total market breadth continued to remain weak as 1,960 counters closed in the red, while 940 stocks finished in the green on the BSE. The total turnover was relatively low at Rs 3,000.76 crore from 3,087.47 crore yesterday.