The near-absence of overseas cues meant investors remained directionless, forcing to cut their positions, brokers said. Investors preferred to book profits at record highs amid concerns over fiscal slippages and rising crude oil prices and absence of cues from global markets which were closed for the New Year holiday.
"The inaugural trading day of the new calendar year began on a flat note in absence of its major global peers. Subsequently, we saw consolidation within a slender range for the major part of the session. However, a sharp decline in last 45 minutes of the trade dragged the index significantly lower to conclude the session with nearly a per cent cut," said Sameet Chavan, chief analyst-technical and derivatives, Angel Broking.
"Undoubtedly, this is not a kind of start most of the traders might have wished for after enjoying a good Bull Run in the year gone by and especially after having a fantastic close last Friday at record highs."
The benchmark index posted its biggest single-day fall since December 1, 2017, when the index had lost 316.41 points. The BSE index had closed at an all-time high of 34,056.83 in the last session of 2017.
Auto stocks such as Tata Motors, Bajaj Auto, M&M, Maruti Suzuki India and Hero MotoCorp too came under pressure and lost up to 1.35 per cent after December sales data failed to cheer investors. Maruti Suzuki India reported a 10 per cent rise in December sales.
"Despite positive auto sales numbers, market started off the New Year on a cautious note. Lingering concern on fiscal slippages and a sharp up-move in crude prices dampened investor sentiments. Additionally, an expectation of weak monthly manufacturing data tomorrow is adding to the cautiousness," said Vinod Nair, head of research, Geojit Financial Services Ltd.
"Now, the Nifty has violated 10,460 on a closing basis and the other crucial support (10,426) on an intraday basis. Ideally, longs should remain intact till it convincingly breaks 10,426; but the way it has come off today from highs, it is certainly not an encouraging sign... On the downside, the possibility of further weakness towards 10,380-10,340 has now increased," Mr Chavan of Angel Broking added.
The NSE Nifty rose by 2,345 points in calendar year 2017 - a return of 29 per cent - while the BSE Sensex added 7,430 points - a return of 28 per cent. The Sensex clocked its best performance in recent years in 2017.
"Although, recently, we saw few whipsaws in the downward direction, traders are advised to stay light and avoid taking undue risks," Mr Chavan further said.
The stock markets would be guided by macroeconomic data and auto sales numbers during the first week of the New Year, say experts.
PMI data for the manufacturing and services sectors which are due this week would play a key role in setting the market trend.
Investors will also be tracking companies' third quarter results.
Going forward, third-quarter earnings of India Inc and the Union Budget will be key factors to watch over next couple of months, according to analysts.
Infosys, India's second largest software services firm, will announce its earnings for the October-December quarter on January 12, kicking off the Q3 earnings season.
(With agency inputs)