Massive fall in rupee and participants remaining sidelined ahead of expiry of May contracts too prompted investors to trim positions, traders said.
"With notices on MAT being sent to foreign investors, the fear of retrospective taxation has resurfaced...This has visibly eroded the bargain hunting interest that has been underpinning markets last week," said Anand James, Co Head Technical Research Desk at Geojit BNP Paribas.
Fed Chair's indication that US central bank is likely to raise interest rates this year, may have has also put a cloud over Indian markets, he added.
Falling for the second day in a row, the 30-share Sensex closed down 112.47 points or 0.41 per cent at 27,531.41 -- the lowest closing level since May 15. It touched a high of 27,675.94 and a low of 27,473.54 during day's trade.
Also Read
The 50-issue NSE Nifty fell by 30.90 points or 0.37 per cent to 8,339.35 after hovering between 8,320.05 and 8,378.90 intra-day.
Shares of Refinery, Realty and FMCG sectors were the major losers on the day.
"Participants upheld the cautious approach due to prevailing volatility and preferred profit taking throughout the day," said Jayant Manglik, President-retail distribution of Religare Securities.
In the overseas market, Asian stocks ended mixed as key indices in China, Japan, Hong Kong and Taiwan firmed up by 0.12 to 2.02 per cent, while indices in Singapore and South Korea fell in the range of 0.03 to 0.12 per cent.
European stocks were trading lower in their early trade as fears lingered about the Greek debt situation. Key indices in France, Germany and UK were down between 0.05 and 0.49 per cent.