The Sensex fell 93 points to 26,560 and Nifty declined 32 points to settle at 8,193.
Meanwhile, investors largely ignored data released late on Wednesday that showed gross domestic product expanded by an annual 7.3 per cent between July and September, given most analysts expect that to reverse this quarter after India withdrew higher-value banknotes.
Data on Thursday showed Indian factory activity decelerated sharply last month as demonetisation led to a rationing of cash and cooled domestic consumption, new orders and production.
On the sectoral front, banking, metal, auto, telecom and realty shares witnessed selling in today's session. While a few healthcare, FMCG and capital goods shares witnessed buying interest.
From the Nifty basket of shares, 31 ended lower while 20 ended higher.
Idea Cellular slumped 6 per cent to close at Rs 72.80 after Reliance Jio extended free calls and data services for its customers to March 31, 2017 from December 31.
Power Grid, Tata Motors, ICICI Bank, BPCL, Mahindra & Mahindra, Ambuja Cements, Tata Motors, State Bank of India, Yes Bank, BHEL and Kotak Mahindra Bank were also among the laggards.
On the other hand, GAIL India, Bharti Infratel, Eicher Motors, Sun Pharm and Dr Rddy's Labse were among the gainers.
The overall market breadth was negative 1,560 stocks ended lower while 1,120 ended higher on the BSE.