The 30-share BSE benchmark index dropped another 267 points during this truncated trading week, but managed to end well above the 20,000 mark.
Brokers said the market was also under pressure as the rupee fell to a two-month low of 63.91 against the dollar. A depreciating Indian unit could slow capital inflows into Asia's third largest economy and deter the Reserve Bank from easing liquidity curbs further.
A falling rupee will fuel inflation, increase import bill and expand current account deficit.
Inflation, as measured by the consumer price index, rose to 10.09 per cent in October from from 9.84 per cent in the previous month, entering double digits after seven months, according to the government data.
The markets tumbled even after the data showed exports in October rose at the fastest pace in two years.
India's exports in October rose 13.47 per cent to USD 27.27 billion from a year ago, while imports dipped 14.5 per cent, helping to narrow down the trade deficit.
Industrial production grew 2 per cent in September, mainly on account of better performance in the power and mining sectors.
The Sensex opened lower at 20,596.40 and fell further to 20,161.64 on selling pressure. But, it recovered afterwards to 20,672.53 before ending at 20,399.42, showing a loss of 266.73 points, or 1.29 per cent, over the last weekend close.
The BSE barometer surged over 200 points on Thursday (the last trading day as stock market was closed on Friday on account of Muharram).
The Sensex, which saw a pre-Diwali rally, has dropped by 797.39 points, or 3.76 per cent, in the last two weeks.
The NSE benchmark Nifty tumbled by 84.60 points, or 1.38 per cent, to 6,056.15. The 50-share index has lost 251.05 points, or 3.98 per cent, in two weeks.
The market surged on Thursday on indications that the US Fed will continue its stimulus programme. Global market also moved up after Janet Yellen, nominated by President
Barack Obama to lead the US central bank, indicated the multi-billion easy money policy, which has benefited emerging markets like India, would continue.
RBI Governor Raghuram Rajan, who has increased a key rate twice since taking over on September 4, said during the week that food inflation was "worryingly high" and the price situation would improve once the new crops arrive.
Among the 30 Sensex stocks, 21 declined, eight firmed up while one (ICICI Bank) ruled steady.
Major losers during the week were Gail India 6.10 pct, Coal India 5.89 pct, Cipla 4.47 pct, Tata Power 4.37 pct, SSLT 4.33 pct, L&T 3.50 pct, TCS 3.20 pct, Reliance Ind 2.71 pct and ONGC 2.56 pct.
However, Tata Steel rose by 5.54 pct, M&M 5.27 pct, Dr Reddy's Lab 2.06 pct and Maruti Suzuki 1.94 pct.
Among the other indices, BSE-IPO dropped by 5.24 pct, BSE-Realty 2.91 pct, BSE-CG 2.69 pct, BSE-Oil&Gas 2.48 pct, BSE-PSU 2.43 pct, BSE-FMCG 1.34 pct, BSE-CD 1.28 pct, BSE-IT 1.16 pct and BSE-Bankex lost 1.06 pct.
Meanwhile, FIIs continued their buying spree during the week, according to provisional data from stock exchanges.
The total turnover at BSE and NSE fell to Rs 7,628.30 crore and Rs 43,582.81 crore, respectively, during the week from Rs 8,218.75 crore and Rs 49,058.68 crore