Consumer and metal stocks dragged markets lower on Thursday after two straight sessions of gains, as weak US economic data stoked recession fears in global markets.
"The crucial issue influencing equity markets globally is whether the US will succeed in containing inflation without falling into a recession," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
"When data indicates a possible recession, US markets go down and all other markets are impacted."
US data showed retail sales fell the most in a year in December, while manufacturing output recorded its biggest drop in nearly two years.
Further dampening sentiment for risky assets, Federal Reserve policymakers on Wednesday signalled they will push on with more interest rate hikes, even as inflation shows signs of having peaked and economic activity is slowing.
In domestic trading, most of the 13 Nifty sectoral indexes closed in the negative territory, with fast-moving consumer goods (FMCG) and metal among the worst decliners, falling 0.86% and 0.56% respectively.
"Metals have benefited on hopes of demand recovery from China, the re-opening of its borders, and now we are seeing some profit booking in the sector," said Siddhartha Khemka, head of research (retail) at Motilal Oswal Financial Services.
Hindustan Unilever Ltd closed 1.36% lower ahead of its third-quarter earnings results and weighed the most on the FMCG index which fell 0.86%. Investors will look for commentary on the impact of inflation on demand.
Asian Paints Ltd finished 2.69% down and was among the top losers on the Nifty 50 after it reported a smaller-than-expected rise in quarterly profit on soft demand.