The S&P BSE Sensex extended its losses for the third consecutive session on Wednesday, falling by 67 points on the back of rising concerns over companies' earnings in the September quarter.
The Sensex closed at 26,779 points, down 0.25%, while the 50-share Nifty fell by 23 points, or 0.29%, to end at 8,107.
"Sentiment was hit after index heavyweights like Hindustan Unilever and TCS announced quarterly results which were below street expectations," said Amar Ambani, Head of Research, IIFL.
Investors' worries rose after second quarter earning results from India's second largest IT firm Tata Consultancy Services (TCS) missed market expectations and Infosys revised down its dollar revenue forecast for the current fiscal.
While TCS posted 6.1% growth in net profit for the second quarter this fiscal year, Infosys lowered its annual sales growth forecast to 6.4-8.4% in dollar terms from a previous estimate of 7-9% despite posting a forecast-beating net profit in Q2.
"TCS, the industry growth leader, has marginally missed street's growth estimates in the past two quarters. In spite of the stock having witnessed a time correction over the past six months, its valuation remains elevated at 18x FY17 P/E. As the earnings growth is expected to lag revenue growth over the next couple of years, valuation could come under pressure," Ambani said.
IT shares came under pressure following TCS results. The TCS share plunged by over 4%, while Infosys ended 0.11% lower.
Besides, weakness in global markets as a result of renewed worries over slowdown in China weighed on market sentiments.
China's inflation fell to 1.6% in September from 2% in August, indicating a reduced demand in the country and consequently, signs of a further slowdown in economic activity in the world's second largest economy.
Tata Motors closed 2.4% lower following the release of disappointing economic data in China. China is the largest market for Tata Motors' luxury car division, Jaquar Land Rover (JLR).
India's largest automobile manufacturer, Tata Motors had reported nearly 49% drop in its net profit in the first quarter of 2015-16 due to declining sales in the world's biggest car market, China.
Among the BSE sectoral indices, IT was the top loser, while consumer durables index ended as the biggest gainer.
Hindalco (up 2.8%), ACC (up 1.8%), Tata Steel (up 1.4%), HDFC (up 1.2%) and Reliance Industries (up 1%) were the top gainers among Sensex stocks. DLF (down 2.5%), Hindustan Unilever (down 1.9%) and ICICI Bank (down 1.6%) were the top losers.
On the commodity front, gold prices soared by Rs 385 to Rs 27,185 per 10 grams, while silver prices rose sharply by Rs 500 to Rs 37,300 per kg.
In the overseas markets, prices of the yellow metal rose to a three-and-half month high amid weakening dollar, as comments from the US central bank officials point to reduced chances of an interest rate hike in the country this year.
The rupee appreciated by 15 paise to 65.04 against the US dollar supported by weakness in the greenback in the overseas markets.