Oil and select auto heavyweights bore the brunt of selling pressure; ONGC, RIL, Tata Motors, M&M key losers.gainers.
The benchmark indices turned volatile towards the close of trade due to caution ahead of key macroeconomic numbers to be released later in the week.
Fears surrounding the stalled session of Parliament and the impact on reforms would have also unnerved the market participants at higher levels.
The Sensex surrendered more than 300 points from the highs of the day to end at 28,101, weaker by 135 points or 0.4% and the Nifty settled at 8,525, down 39 points.
Oil and select auto heavyweights bore the brunt of selling pressure, with the oil majors skiding on a further decline in crude oil prices and select auto stocks such as Tata Motors and M&M slipping on the back of disappointing quarterly results.
In the broader markets, the BSE midcap index ended flat at 11,555, while the smallcap index shed 0.4% at 12,054.
The market breadth turned negative at close; out of 3068 stocks traded on the BSE, there were 1417 advancing stocks as against 1538 declines.
The government will release inflation based on the Consumer Price Index (CPI) data and industrial production data for June 2015 on August 12 and inflation based on the Wholesale Price Index for July 2015 on August 14.
All the sectoral indices ended in the red, with oil and auto stocks leading the decline. In the oil space, ONGC shed nearly 3% at Rs 274 and RIL lost 1.6% at Rs 968 on the back of a further drop in crude oil prices.
Oil declined for a fourth day as a rebound in US drilling added to signs producers will keep pumping crude amid a global glut.
Futures slid as much as 1.2pc in New York, dropping below the lowest close since March 2009.
Oil prices fell in the Asian marketon Monday, continuing the losses of previous weeks, after a US report stoked expectations of a global glut of suppliers.
The US benchmark West Texas Intermediate (WTI) for September delivery was at .57, down from .87 on Friday in New York - its lowest close since March 17.
Brent crude for September was trading at .25 after ending at .61 on Friday.
In the auto space, Tata Motors declined by 1.7% at Rs 385 after reporting a steep fall in its consolidated net profit for the quarter ended June as volume sales of Jaguar Land Rover fell by one-third in its biggest market China due to a slowdown.
M&M declined by 2.3% at Rs 1355 after reporting, on Friday, a 3.3% dip in stand-alone net profit at Rs 852.2 crore in the June quarter due to a fall in overall sales and expects strain to continue in the tractor business in the current quarter as well.
The stock is down 2%. Metal stocks also saw selling pressure, with Hindalco, Coal India and Vedanta shedding more than 1% each.
On the other hand, BHEL rebounded more than 2% at Rs 271 due to value buying at lower levels; the stock had slumped by nearly 8% on Friday after posting a steep 83% drop in net profit in the first quarter ended June 30.
Select auto stocks, including Hero Motocorp and Maruti Suzuki, also added around 1% each.
The initial public offer (IPO) of Power Mech Projects opened for subscription on Friday and will close on Tuesday, August 11.
The power infrastructure services player plans to raise up to Rs 273 crore at the higher end of the price band of Rs 615-Rs 640.