The Sensex closed 52 points lower at 40,817.74 while the broader Nifty settled at 12,025.35, lower by 27.60 points down 0.23 per cent.
However, Sensex fell as much as 400 points earlier in the day but recovered after Iran reportedly said its strike on US facilities in Iraq Wednesday didn't mean it was seeking a war.
Besides US President Donald Trump tweeted :"All is well! Missiles launched from Iran at two military bases located in Iraq. Assessment of casualties & damages taking place now. So far, so good!.."
Besides, concerns on macro front remained elevated as the advanced estimates data released by the Central Statistical Office (CSO) Tuesday showed the growth in gross domestic product (GDP) will be at 5 per cent for the current fiscal, the lowest in over 10 years.
Bharti Airtel, Tata Consultancy Services, and UltraTech Cements were the top gainers. L&T, ONGC, Hero MotoCorp and Infosys were the top laggards.
Ruchit Jain of Angel Broking said: "The increased US Iran tensions had a negative impact on most of the Asian bourses in the morning and hence, our markets too started the session with a gap down of more than 100 points. However, the index then recovered gradually throughout the day and trimmed majority of losses to end above the 12,000 mark."
Jain added that owing to the news of Iran firing missiles at American forces based in Iraq, the benchmark indices started the session with a gap down opening. However, usually during such gap down days, the follow up move post opening is more important to determine the trend.
( With inputs from IANS )