Despite recovery in late trades, benchmark indices ended marginally lower amid weak global cues, with auto shares leading the decline on failing an international safety test.
Prospects of higher interest rates in the United States pulled global markets lower after the latest data showed that US consumer prices rose in April at their fastest pace in three years.
The S&P BSE Sensex plunged 69 points to close at 25,705 and the Nifty50 slipped 21 points to settle at 7,870.
Broader markets outperformed- BSE Midcap index ended flat while the Smallcap index ended 0.2% higher.
"Markets faced a considerable amount of turmoil intraday on Wednesday, the first half of the day largely remained in the bearish territory with global cues adding considerable weakness to our markets.
"A sharp recovery post 12 pm tool the markets higher recovering most of the lost ground to near flattish terrain, this recovery was largely aided by the merger buzz surrounding SBI and its arms. "
"The positive outlook in GST announced by the finance minister during the same time also added further impetus to the markets," said Nikhil Kamath, Co-Founder & Director, Zerodha.
He further adds, "Energy and commodity stocks still seem like a good value bet with the intrinsic trends in the underlying commodities still looking up. Overall the market still seems to be bouncing faster than it is falling, holding on the bullish momentum we have witnessed over the last couple of months. We would advise staying away from trading in the short term and holding on to a mildly bullish outlook over the long term."
Among overseas markets, Asian shares weakened on Wednesday in the wake of accelerating US inflation and comments from Federal Reserve officials that rekindled prospects of an interest rate rise as early as June.
Japanese shares and the yen were volatile, with markets digesting surprisingly strong annualised 1.7 per cent growth in the January-March quarter that may be masking pockets of weakness.
China's CSI 300 slipped 1.1% and the Shanghai Composite index lost 1.6%. Hong Kong's Hang Seng also slid 1.6%.
Back home, the Reserve Bank of India fixed the reference rate of the rupee at 66.9131 against the US $ and 75.4847 for the Euro on Wednesday.
Among key stocks, all three listed associate banks of State Bank of India gained by up to 9% on the Bombay Stock Exchange as media report suggests that SBI may merge its five associate banks and Bharatiya Mahila Bank (BMB) with itself.
State Bank of Travancore and State Bank of Mysore rallied between 3%-9%. However, State Bank of Bikaner & Jaipur slipped 2%. SBI surged almost 2%.
From the auto space, Bajaj Auto, Hero Moto, Maruti Suzuki, Tata Motors and M&M were down 1%-2%.
United Kingdom-based vehicle testing agency Global NCAP on Tuesday awarded zero star safety rating for the Renault Kwid, Maruti Suzuki Celerio, Maruti Suzuki Eeco, Mahindra Scorpio and Hyundai Eon following a crash test.
Maruti Suzuki lost 1% after the Japanese yen strengthened against the dollar.
A strong yen adversely impacts Maruti's operating profit margin.
Maruti pays royalty to its Japanese parent Suzuki Motor Corporation in yen terms for some of its earlier models.
Besides, Suzuki Motor said it had used improper fuel economy testing methods, sending its shares tumbling as a mileage cheating scandal in Japan that has engulfed Mitsubishi Motors Corp widened.
TCS slipped 0.7%. The software major said that IDBI Bank's financial services arm IDBI Capital Market Services has gone operational with the securities trading and processing solution from TCS BaNCS for its online brokerage business.
HDFC Bank dipped over 1% ahead of the fourth quarter earnings tomorrow. Lupin surged around 2% ahead of Q4 earnings tomorrow.
Public sector lender Punjab National Bank (PNB) today reported a net loss of Rs 5,367.14 crore for the fourth quarter of 2015-16 against a net profit of Rs 306.56 crore for the corresponding period of the previous year on account of higher provisioning for bad loans.
Shares of PNB surged 3.25%.
Among other shares, Trigyn Technologies was locked in upper circuit of 20% Rs 105 on the BSE after the company reported a more than doubled consolidated net profit at Rs 13.54 crore for the fourth quarter ended March 31, 2016.
Dairy firm Parag Milk Foods, which recently concluded its extended initial public offering (IPO), will list shares on the bourses on Thursday.
Shares of GlaxoSmithKline Consumer Healthcare fell 3.6% today after the company reported an 8.18% decline in standalone net profit for the March quarter at Rs 180.68 crore.
OCL India rallied 16%, its 52-week high on the BSE, after the company reported a more than doubled net profit at Rs 134 crore for the fourth quarter ended March 31, 2016 (Q4FY16), due to higher realization and other income.
Tata Metaliks was locked in the upper circuit for a second straight day, up 20% at Rs 168, also its 52-week high on the BSE, after the company announced on Tuesday the withdrawal of the scheme of amalgamation of the company and its subsidiary Tata Metaliks DI Pipes with Tata Steel.
Image: Worried traders look at the Sensex figures displayed on a screen at the Bombay Stock Exchange. Photograph: Reuters
