The Sensex ended slightly lower on Monday after a surprise contraction in industrial production and other data showing a fall in exports and high consumer inflation deepened fears about the economy, hitting capital good stocks especially hard.
However, United Spirits shares posted their biggest single-day share gain since at least 1995 after its stake sale to Diageo spurred upgrades from several analysts, who called the deal "transformational" and a "game changer".
The weak data is due to add pressure on the government to take more action to revive growth after already announcing a slew of fiscal and economic measures in September, including opening up the multi-brand retail sector to foreign investors.
That's especially the case as the Reserve Bank of India has signalled it won't cut interest rates until the January-March quarter, shifting the focus to the parliament session due to re-start on November 22.
"Focal point for the near term direction would remain how the parliament session goes," said Aneesh Srivastava, Chief Investment Officer of IDBI Federal Life Insurance.
"Focus would be on decision making and reforms," he said.
The Sensex fell 0.07 percent, or 13.34 points, to end at 18,670.34.
The 50-share NSE fell 0.04 percent, or 2.55 points, to 5,683.70.
Both indexes fell for a third consecutive session.
Markets will be opened on Tuesday for a short trading session during the Diwali public holiday, and will close on Wednesday.
Capital good stocks were among the day's leading decliners after industrial output unexpectedly fell 0.4 percent in September, well below expectations for a 2.8 percent advance.
The manufacturing output slumped 1.5 percent from a year earlier, the data showed, sending Larsen & Toubro Ltd , India's top construction and engineering company, down 0.9 percent.
Smaller rival Punj Lloyd Ltd fell 1.4 percent.
Other data on Monday showed India's trade deficit last month reached $20.9 billion as exports fell but imports jumped, while consumer price inflation rose 9.75 percent in October.
Companies posting weak earnings also suffered on Monday. Tata Steel Ltd fell 1.7 percent after reporting a surprise July-September loss on Friday as weakening demand and prices in its main European market offset a solid performance at home.
Shares in Tata Steel, which also said it did not expect an improvement any time soon due to weak market conditions, have fallen 4.9 percent over the past two sessions.
Coal India , the world's largest coal producer, fell 0.6 percent after it narrowly missed estimates with a 19 percent rise in second-quarter profits on Friday.
Jaypee Infratech , which builds roads and other infrastructure projects, retreated 1.6 percent after saying on Monday its July-Sept net profit fell 41.8 percent from a year earlier.
However, among gainers, United Spirits surged 34.7 percent, hitting earlier its highest since January 2008 after Morgan Stanley, J.P.Morgan and CLSA raised their ratings to the equivalent of a buy.
Brokerages said United Spirits will substantially cut its debt and improve its profits after agreeing to sell a 53.4 percent stake to Diageo for $2.1 billion.
State Bank of India rose 1.6 percent after Standard Chartered said the country's biggest lender over-estimated its gross slippage for the July-September quarter, according to an email sent to clients.
The rise in bad debts reported as part of its July-September earnings had sent SBI shares down 3.9 percent on Friday.
Shares in L&T Finance Holdings Ltd , a unit of L&T, surged 11.6 percent on hopes it would be a strong contender to earn a banking license, after a senior Finance ministry official on Thursday said India could allow new banks by the end of 2012/13 fiscal year.
IDFC Ltd , another company seen as a strong contenders for a banking license, rose 2.9 percent.