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However, higher global crude oil prices, buoyant Asian markets, appreciation in rupee and largely positive macro-economic data arrested the decline.
The wider 51-scrip Nifty of the National Stock Exchange (NSE) edged lower by 31.60 points or 0.38 per cent to 8,192.90 points.
The barometer 30-scrip sensitive index (Sensex) of the BSE, which opened at 26,756.66 points, closed at 26,559.92 points -- down 92.89 points or 0.35 per cent from the previous close at 26,652.81 points.
The Sensex touched a high of 26,769.32 points and a low of 26,540.82 points during the intra-day trade.
The BSE market breadth was tilted in favour of the bears -- with 1,562 declines and 1,118 advances.
On Wednesday, the equity markets rose on the back of higher global crude oil prices, short-covering and value buying at lower levels.
The barometer index on Wednesday gained 258.80 points or 0.98 per cent to 26,652.81 points, while the NSE Nifty edged higher by 82.35 points or 1.01 per cent to 8,224.50 points.
"Profit booking after the markets rose consistently since the last Friday and today morning's healthy opening due to higher global crude oil prices has led to the fall," James told IANS.
"Meanwhile, Nikkei and European indices turned lower from the top after oil eased, ensuring that global cues were also not supportive."
Dhruv Desai, Director and Chief Operating Officer of Tradebulls, CNX Nifty traded with bearish sentiments due to selling pressure.
"Nifty witnessed some volatility in second half of the session due to short covering but failed to recover from lower levels," Desai said.
"Bank Nifty also traded with bearish sentiments due to selling pressure from traders. Oil-gas, textile, aviation, media-entertainment, FMCG, cement and power stocks traded with bearish sentiments."
"Bearish USD/INR futures prices limited the downside in Nifty and due to that some recovery was seen in second half of the session."
The Indian rupee strengthened by three paise to close at 68.35 against a US dollar from its previous close of 68.38 to a greenback.
In terms of investments, provisional data with exchanges showed that the foreign institutional investors (FIIs) sold stocks worth Rs 402.62 crore, whereas the domestic institutional investors (DIIs) purchased scrip worth Rs 237.81 crore.
Sector-wise, only two out of the 19 sector based indices of BSE closed in the green, led by S&P BSE Healthcare index which gained by 53.18 points and the capital goods index which closed higher by 5.68 points.
On the other hand, the S&P BSE banking index receded by 248.29 points, followed by the metal index, which declined by 180.58 points, and the automobile index, which was lower by 177.52 points.
Major Sensex gainers on Thursday were: Gail, up 2.87 per cent at Rs 437; Sun Pharma, up 1.62 per cent at Rs 721.80; Hero MotoCorp, up 1.45 per cent at Rs 3,215; Dr.Reddy's Lab, up 1.29 per cent at Rs 3,240; and ONGC, up 1.11 per cent at Rs 292.20.
Major Sensex losers were: Power Grid, down 3.96 per cent at Rs 184.40; Asian Paints, down 3.18 per cent at Rs 939.05; Tata Motors, down 2.44 per cent at Rs 448.15; Mahindra and Mahindra (M&M), down 2.19 per cent at Rs 1,159.95; and ICICI Bank, down 2.13 per cent at Rs 259.35.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)