The broader market outperformed the benchmark indices as focus shifted to value buying in mid-cap and small-cap shares after the sharp gains on Friday. The Sensex was down 31 points at 17,399 and the Nifty closed flat at 5,278.
Through the day, the Sensex saw a high of 17,486 and touched a low of 17,363.
In the broader markets, the midcap and the smallcap indices were both up nearly 1 per cent each.
On the macro front, India's factories in June stepped up production and hired workers at the fastest rate in more than two years, but sagging demand abroad took a toll on growth in new export orders, a survey showed on Monday.
The HSBC manufacturing Purchasing Managers' Index (PMI) rose to 55.0 in June, a four-month high, from 54.8 in May. It has kept above the 50 mark that divides growth and contraction for more than three years.
Meanwhile, India's exports fell 4.16 percent year-on-year to $25.68 billion in May, while imports fell 7.36 percent year-on-year to $41.9 billion, government data showed on Monday. May's trade deficit was $16.3 billion.
In Asia, Japan's Nikkei average erased earlier gains to end almost flat on Monday after an early rally spurred by an agreement to stabilise euro zone banks sputtered out as investors waited for more details.
The Nikkei ended at 9,003.48, almost unchanged, after having hit two-month high of 9,103.79 at one point.The other notable gainers were Hang Seng, Jakarta Composite, Straits Times up 1-2 per cent.
Gains in European markets were capped by the weakening growth outlook. CAC remained closed for the day while DAX and FTSE added 0.8 per cent and 0.5 per cent respectively.
Back home, among the sectoral indices, gains were led by realty up 2 per cent followed by consumer durables, bank, power and metal shares up between 0.6-1 per
Auto index slipped 0.6 per cent on mixed June sales figures. Country's second largest two-wheeler maker Bajaj Auto reported a 1.38 per cent decrease in its motorcycle sales in June at 318,377 units on a y-o-y basis.
However, Maruti Suzuki India reported a 20 per cent y-o-y jump in its total sales in June 2012, on back of robust sales growth in Swift, Estillo, Ritz and DZire.Country's second-largest carmaker Hyundai Motor India Ltd today reported a 3.49 per cent rise in its total sales at 54,354 units in June.
IT index clsoed down 0.3 per cent after a foreign brokerage downgraded the sector. Macquarie Equities Research has downgraded IT services sector to "underweight" from "overweight" citing demand concerns as Infosys , which already has 30 percent of staff on the bench, delays joining dates for new hires.
The top gainers among the Sensex stocks were HDFC Bank,Bharti Airtel,Sterlite, BHEL,Tata Steel and HDFC, up 1-2 per cent each.
Meanwhile, ITC, Jindal Steel and HUL lost 2-3 per cent. The othet notable losers were Tata Motors,TCS, Hero MotoCorp and Bajaj Auto, down 1 per cent each.
Shares of companies engaged in retail business rallied in late noon trades on reports that the government plans to give a big push to foreign direct investment (FDI) in multi-brand retail after the presidential polls this month.
Pantaloon Retail (India), Shoppers Stop, Provogue (India), Koutons Retail India and CESC have rallied 3-19 per cent on back of huge volumes on the Bombay Stock Exchange.
Among other stocks, Jubilant FoodWorks rose 5 per cent to Rs 1,224 in noon trades after the company said Domino's Pizza has launched its new product offering all new stuffed garlic bread.
The market breadth was very positive as buying shifted to mid-cap and small-cap shares. 1807 stocks advanced while 1033 stocks declined on the BSE.