The 30-share BSE index was trading 403.16 points or 0.82 per cent lower at 48,758.65 in initial deals.
Similarly, the broader NSE Nifty fell 112.80 points or 0.76 per cent to 14,737.95.
HDFC was the top loser in the Sensex pack, shedding over 2 per cent, followed by M&M, HUL, Nestle India, Tech Mahindra and ICICI Bank.
On the other hand, PowerGrid, NTPC, L&T, SBI and ONGC were among the gainers.
In the previous session, Sensex ended 340.60 points or 0.69 per cent lower at 49,161.81, and Nifty slumped 91.60 points or 0.61 per cent to close at 14,850.75.
Foreign institutional investors (FIIs) were net sellers in the capital market as they offloaded shares worth Rs 336 crore on Tuesday, according to provisional exchange data.
According to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, global markets are now caught between two opposing forces – economic recovery and inflation fears. While the former is positive the latter is negative. Going forward, the market trend will depend on which of the two triumphs over the other.
The year-on-year inflation in the US is expected to come around 3.6 per cent, pushed high mainly by the base effect and therefore may not sustain. But if the month-on-month inflation data shows a surge, the dovish Fed will be forced to take it seriously.
The fact that the market is a bit apprehensive of rising inflation is reflected in the US 10-year yield rising above 1.6 per cent, he said.
“So, this space has to be watched. Meanwhile in India Q4 results continue to be good with better than expected performance from mid-small-caps. Market action is likely to be stock specific based on results,” he noted.
Further, market participants will also keep an eye on domestic inflation and industrial production data, scheduled to be released later in the day, traders said.
Elsewhere in Asia, bourses in Shanghai, Hong Kong, Tokyo and Seoul were trading on a negative note in mid-session deals.
On Wall Street, indices ended in the red in overnight sessions.
Meanwhile, international oil benchmark Brent crude was trading 0.36 per cent lower at USD 68.30 per barrel.