BSE Sensex fell over 150 points within first hour of trade on concerns over global growth outlook and weak data from Europe.
Thereafter, Sensex tried to script a turnaround on numerous occasions but profit-selling kept it in on a tight leash. It finally settled at 18,877.96 - a loss of 40.56 points, or 0.21% compared to Friday's level.
At this level, the index is close to the three-month low of 18,842.08 hit on November 27. On Budget day, Sensex had closed at 18,861.54.
The broad-based National Stock Exchange index Nifty on Monday lost 21.20 points, or 0.37%, to close at 5,698.50.
Second-line shares continued to reel under heavy selling pressure. As a result, total 362 stocks closed at their lower circuit bands. NHPC lost over 18%.
The BSE-Smallcap and BSE-Midcap indices closed down by 1.89% and 1.37% respectively.
Across-the-board selling was seen as 12 out of 13 sectoral indices ended with losses with metal, realty, consumer durable, capital goods, PSUs and power segments suffering the most.
Metal shares from 30-share Sensex like Jindal Steel, Hindalco, Tata Steel and Sterlite dropped between 1.95-4.55%. HUL, L&T and Maruti Suzuki lost over 2 percent each.
ITC, TCS, Bharti and Dr Reddy's were major gainers.
Banking stocks led by HDFC Bank, SBI and ICICI Bank closed higher on expectations the RBI will cut interest rates later this month.
The global sentiment was poor after China last weekend announced fresh measures to cool the property market.
European indices were trading lower with finance ministers expected to meet in Brussels today to discuss issues including a bailout for Cyprus.
Asian stocks, except Japan, closed with losses between 0.66-3.65% after reports said China tightened mortgage rules to cool the property market. China's Shanghai Composite index closed down by a whopping 3.65%.
European markets also were quoting lower in their early trade, tracking losses in China. The CAC was down by 0.23%, the DAX by 0.41% and the FTSE by 0.34%.
Moving to the local market, 18 scrips out of the Sensex pack ended lower while 11 scrips finished higher. Tata Power closed steady.
Major losers from the Sensex pack were Hindalco (4.55%), Jindal Steel (4.26%), Sterlite Ind (2.74%), HUL (2.63%), L&T (2.52%), Maruti (2.19%), Bajaj Auto (1.97%), Tata Steel (1.95%) and ONGC (1.00%).
"Weakness in European markets put pressure on Indian markets. Weakness in international metal prices did put further pressure on metals stocks," said Milan Bavishi, Head Research, Inventure Growth & Securities.
Among gainers, Dr Reddy's Lab firmed up by 1.52%, followed by Bharti Aitel (1.46%), HDFC Bank (0.94%), TCS (0.71%), Cipla (0.50%) and RIL (0.38%).
Among the sectoral indices, the S&P BSE-Metal dropped by 2.54%, followed by S&P BSE-Realty (2.25%), S&P BSE-CD (2.15%), S&P BSE-CG (1.85%), S&P BSE-PSU (1.14%) and S&P BSE-Power (1.08%).
The total market breadth continued to show negative trend as 1,958 shares ended lower while just 860 finished up.
The total turnover dropped to Rs. 1,796.57 crore from Rs. 2,045.32 crore on last Friday.
Meanwhile, foreign institutional investors (FIIs) bought shares worth a net Rs. 626.89 crore on last Friday as per the provisional data from the stock exchanges.