The rupee depreciating against the U.S. dollar also affected momentum. However, the indices gave up all the gains to close in the negative territory as final results by 3.30 pm showed BJP had fallen short of a clear majority, and a Congress-JD (S) coalition government was a possibility.
Most of the Asian markets fell as geopolitical developments and rising benchmark of the United States yields spurred a return of risk aversion.
Intra-day, the Sensex surged 437 points to touch a high of 35,993.53.
Brokers said investor sentiment was subdued following uncertainty over government formation in Karnataka, which has thrown up a hung verdict.
Indian shares ended lower for a fourth straight session on Friday, dragged by financials such as HDFC Bank and Housing Development Finance Corp, while sentiment was subdued amid caution over developments in U.S.
The Sensex of the BSE, which opened at 35,537.85 points, was trading at 35,515.81 points (2.28 p.m.), lower by 40.90 points or 0.12 per cent from the previous day's close at 35,556.71 points.
Party fortunes sway and so does Sensex
The 30-share Sensex fell by 125.10 points (-0.35 percent) to 35024.02 in early trade.
The NSE 50-share Nifty also lost 58.40 points, or 0.54%, to 10,682.70, after shuttling between 10,777.25 and 10,664.50.
On the other hand, consumer durables rose 1.37%, realty 0.41%, infrastructure 0.28%, capital goods 0.24% and oil and gas 0.08%.
Foreign portfolio investors (FPIs), who have been net sellers in the past few sessions, sold shares worth a net Rs 518.47 crore, while domestic institutional investors (DIIs) bought shares worth Rs 531.33 crore yesterday, according to provisional data.
Japan's Nikkei was up 0.2 per cent.
The stock of Dena Bank fell 5 per cent, while the Allahabad Bank scrip tumbled almost 9 per cent. Punjab National Bank, which has been under a cloud since February, was down almost 4 per cent.