Paring early gains, the 30-share BSE Sensex declined by 210.08 points, or 0.27 per cent, to settle at 78,428.95. During the day, the benchmark hit a high of 79,143.15 and a low of 78,211.87, gyrating 931.28 points.

The 50-share NSE Nifty closed lower by 159.40 points, or 0.64 per cent, at 24,614.90 after trading in the negative territory throughout the day. During intraday trade, it edged lower by 346.35 points, or 1.39 per cent, to hit a low of 24,427.95.

Market benchmarks traded on a mixed note in the early session on Tuesday, a day after the introduction of the new auction mechanism. Sensex and Nifty on Monday ended with an unusual aberration after stock exchanges introduced the new auction mechanism.

The NSE recorded a turnover of Rs 1,542.2 crore on the second day of the closing auction session on Tuesday, while the turnover on the BSE stood at Rs 9.35 crore. On Monday, the initial trading turnover was Rs 1,276.2 crore for the NSE.

The Closing Auction Session (CAS) in the equity cash segment became operational on Monday, introducing a new auction-based mechanism for determining the closing prices of eligible stocks in a move aimed at making the price discovery process more transparent and robust. Generally, movement in both the benchmark indices is in sync.

"The introduction of the Closing Auction Session (CAS) for F&O stocks has added a new layer of volatility to benchmark indices, with Tuesday's trade reflecting an early adjustment to the revised market structure. After Monday's auction lifted closing prices in several index heavyweights, investors spent much of today's session recalibrating positions as prices gravitated back toward levels established during continuous trading," Hariselvan Radhakrishnan, Founder & CEO of HST Wealth, a Research Analyst firm, said.

The resulting adjustment has been more evident in the Nifty than in the Sensex, as stocks most influenced by the new auction mechanism witnessed relatively sharper profit-taking, he said.

"The divergence appears to reflect market mechanics rather than any meaningful change in underlying fundamentals," Radhakrishnan added.

"Tuesday’s weekly expiry, combined with the implementation of the new mechanism for determining F&O closing prices, has led to a distortion in market trends," Vinod Nair, Head of Research, Geojit Investments Limited, said.

From the Sensex pack, Hindustan Unilever, NTPC, HDFC Bank, Reliance Industries, InterGlobe Aviation and Tech Mahindra were among the laggards.

Trent, Bajaj Finance, Bharat Electronics and Tata Steel were among the winners.

Broader markets closed mixed as the BSE SmallCap Select index went up by 0.25 per cent, while MidCap Select index declined 0.29 per cent.

Among sectors, Insurance tanked the most by 2.09 per cent, followed by Realty (1.18 per cent), Housing Finance (1.17 per cent), Utilities (0.64 per cent), FMCG (0.56 per cent), Energy (0.39 per cent), Top 10 Banks (0.38 per cent), Private Banks index (0.34 per cent) and IT (0.33 per cent). Commodities, Consumer Discretionary, Industrials, Capital Goods and PSU Bank were the gainers.

"Today’s trading session was marked by a period of consolidation following the strong rise seen on Monday, with major indices being subjected to increased volatility levels. Even as the Sensex held its ground fairly well, the Nifty index faced pressure owing to the profit booking by investors in large-cap stocks in sectors like financial services and IT along with apprehensions surrounding the newly introduced closing auction system," Vikram Kasat, Head Advisory, PL Capital, said.

"Today's session suggested that market participants were better prepared for the new closing auction session than they were on its inaugural day," Radhakrishnan noted.