Investors showed least interest in the auto companies and public sector banks (PSBs). The Nifty PSU Bank index closed over 3 per cent lower while the Nifty auto index fell by 2.74 per cent.
The Sensex closed 318.18 points or 0.81 per cent lower at 38,897.46. It had opened at 39,204.47, nearly flat from its previous close of 39,215.64.
The broader Nifty also declined by 90 points or 0.78 per cent to 11,596.90.
"Global central banks, including the RBI, are cutting their rates to support the economy. However, the markets are not yet convinced given the weak demand scenario, extension in trade war and lack of revival in corporate earnings," said Vinod Nair, Head of Research, Geojit Financial Services.
Nair added that FII's are on a risk-off mode, while domestic mutual funds are providing marginal support in the market.
Investors punished Yes Bank for weak quarterly numbers, as it hit its lowest level in 52 weeks, before closing 12.85 per cent lower at Rs 85.80 apiece.
Markets also reacted to Allahabad Bank's statement which said that the lender has been defrauded of Rs 688.27 crore by SEL Manufacturing Ltd (SELM), days after the bank reported a fraud by Bhushan Power and Steel.
Also, Punjab and Sindh Bank in a regulatory filing on Wednesday said that it has been defrauded of Rs 238.30 by Bhushan Power and Steel.
( With inputs from IANS )