World No. 137 Nagal, who stunned Kazakhstan's world No. 27 Alexander Bublik in the opening round on Tuesday, took the first set against Shang, but went down by a 6-2, 3-6, 5-7, 4-6 in two hours and 50 minutes.
On Tuesday, Nagal roared in glory when the Indian tennis sensation won the first round of the Australian Open and became the first Indian male player since Ramesh Krishnan in 1989 to beat a seeded player at a Grand Slam.
Meanwhile, in the men's doubles, Indian veteran Rohan Bopanna and his Australian partner Matthew Ebden successfully navigated a tough match against Australian wildcard entrants James Duckworth and Marc Polmans, securing their spot in the second round.
Bopanna and Ebden fell 0-5 behind in the first game but recovered to win their first-round match 7-6(7-5), 4-6, 7-6 (10-2) in the super tie-breaker.
The second seed Indo-Australian pair will next face ace another Australian wild card team of John Millman and Edward Winter.
