The 30-share index lost 112.37 points, or 0.56 per cent, to close at 20,111.61. It had lost 62 points yesterday.
Similarly, the broad-based National Stock Exchange index, Nifty, declined by 42.80 points, or 0.70 per cent, to 6,114.10.
Also, the MCX-SX flagship index SX40 closed lower by 66.13 points, or 0.55 per cent, at 11,881.37.
Brokers said Sensex climbing over a two-year high last week advised investors to book profits.
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Investor confidence also shaken as brokerage firm Barclays Capital lowering India's growth forecast to 6 per cent for 2013-14, from earlier projection of 6.2 per cent, citing "recent disappointments" in economic activity.
Of the 30 shares, 21 stocks declined led by NTPC, Tata Motors.
The country's largest car-maker Maruti Suzuki dropped by 2.49 per cent to Rs 1,698.45 on reports Life Insurance Corporation of India has sold 2.53 per cent stake in the company over a period of almost six months.