The Sensex closed at 17383 down 47 points and the Nifty was flat at 5279 (provisional).
(Updated at 14:30 hrs)
The broader market outperformed the benchmark indices as focus shifted to value buying in mid-cap and small-cap shares after the sharp gains on Friday. The Sensex was up 34 points at 17,464 and the Nifty was up 18 points at 5,297.
In the broader markets, the midcap and the smallcap indices were both up nearly 1% each.
On the macro front, India's factories in June stepped up production and hired workers at the fastest rate in more than two years, but sagging demand abroad took a toll on growth in new export orders, a survey showed on Monday. The HSBC manufacturing Purchasing Managers' Index (PMI) rose to 55.0 in June, a four-month high, from 54.8 in May. It has kept above the 50 mark that divides growth and contraction for more than three years.
Meanwhile, India's exports fell 4.16 percent year-on-year to $25.68 billion in May, while imports fell 7.36 percent year-on-year to $41.9 billion, government data showed on Monday. May's trade deficit was $16.3 billion.
In Asia, Japan's Nikkei average erased earlier gains to end almost flat on Monday after an early rally spurred by an agreement to stabilize euro zone banks sputtered out as investors waited for more details. The Nikkei ended at 9,003.48, almost unchanged, after having hit two-month high of 9,103.79 at one point.
European equities were around seven-week highs, with the FTSEurofirst 300 of top companies up 0.1 percent at 1,022.68 points, but gains were capped by the weakening growth outlook and Germany's stock market opened lower.
The gains were led by realty, consumer durables, metals and bank shares. The BSE Realty, Consumer Durables, Metals and Bankex were up 0.9-2.8% each.
Auto index slipped on mixed June sales figures while IT index was marginally down after a foreign brokerage downgraded the sector. Macquarie Equities Research has downgraded IT services sector to "underweight" from "overweight" citing demand concerns as Infosys , which already has 30 percent of staff on the bench, delays joining dates for new hires.
Country's second largest two-wheeler maker Bajaj Auto reported a 1.38% decrease in its motorcycle sales in June at 318,377 units on a y-o-y basis. However, Maruti Suzuki India reported a 20% y-o-y jump in its total sales in June 2012, on back of robust sales growth in Swift, Estillo, Ritz and DZire.
The top gainers among the Sensex stocks were HDFC Bank, HDFC, SBI, Tata Steel and Bharti Airtel, up 1-2% each.
TCS, ONGC, Hero MotoCorp and Tata Motors, down 1% each, were the major losers.
Among other stocks, Punj Lloyd has soared 6% to Rs 51.70, extending its Friday’s 4% gain, on hopes of resuming work on pending projects in Libya. “The company, backed by Warburg Pincus LLC, plans to resume work next month in the North African nation where it has $800 million (Rs 4,400 crore) worth of projects,” the report suggests quoting company’s Chairman Atul Punj.
The market breadth was very positive as buying shifted to mid-cap and small-cap shares. 1717 stocks advanced while 971 stocks declined on the BSE.