In a listless trading, the Sensex today closed with a marginal fall of over 31 points at 26,595 on the first trading day of 2017 as banking stocks felt the heat due to worries that the lending rate cuts will hit their bottom line.
Investors started taking profit in recent gainers that made mood downbeat.
There was accelerated selling after manufacturing sector contracted in December, hit hard by demonetisation, and fresh weakness in the rupee. The Nikkei Markit India Manufacturing Purchasing Managers' Index (PMI) fell to 49.6, down from 52.3 in November.
Opening on a weak note, the Sensex shuttled between 26,720.98 and 26,447.06 and settled lower 31.01 points, or 0.12 per cent, at 26,595.45.
The gauge had gained 415.78 points in the previous two straight sessions.
The 50-share Nifty edged down by 6.30 points, or 0.08 per cent, to close at 8,179.50. It shuttled between 8,212 and 8,133.80 intra-day.
In the banking space, stocks of HDFC Ltd emerged as the top loser by falling 3.45 per cent, followed by SBI 2.46 per cent and ICICI Bank 1.37 per cent. Axis Bank shed 0.73 per cent and HDFC Bank lost 0.57 per cent.
Other losers were Infosys, GAIL, Cipla, Wipro, HUL, NTPC and TCS.
Most global stocks, including those in Asia and Europe, were closed today for the New year.
The near-absence of overseas cues meant investors remained directionless.
In contrast, investors indulged widening their portfolios in the second-line stocks, with small-cap and mid-cap indices outperforming the Sensex with gains of 1.20 per cent and 0.83 per cent, respectively.
Bajaj Auto fell 1 per cent after company reported a 22 per cent decline in total sales in December while Hero MotoCorp fell 0.53 per cent.
On the other hand, largest car-maker Maruti Suzuki gained 2.69 per cent even as it reported 1 per cent decline in total sales in December 2016.
M&M rose 3.42 per cent after the company reported 9 per cent increase in total tractor sales at 14,047 units in December while Tata Motors climbed 3.37 per cent.
Stocks of realty companies caught buyers' fancy after Prime Minister Narendra Modi on December 31 announced that loans of up to Rs 9 lakh taken in the new year under the new scheme of Pradhan Mantri Awas Yojana will receive interest subvention of 4 per cent and loan of up to Rs 12 lakh will get a 3 per cent waiver.
Shares of Unitech, DLF Ltd, HDIL, Oberoi Realty, Sobha Ltd, Godrej Properties, Indiabulls Real Estate and Omaxe Ltd gained up to 6.65 per cent.
Meanwhile, foreign funds sold shares worth Rs 585.64 crore while domestic institutional investors (DIIs) bought shares worth a net Rs 824.84 crore on the last trading session of 2016 on Friday, as per provisional data.
Stocks of state-run oil marketing companies such HPCL, BPCL and IOC ended higher by up to 1.78 per cent following hike in fuel prices.
Sectorally, the BSE banking sector index suffered the most by falling 1.18 per cent, followed by IT (0.33 per cent) and technology (0.15 per cent), while realty rose (4.32 per cent) and auto was up (1.95 per cent).
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