"For me it felt like the first match I ever played on the Tour", Djokovic said.
Daniel, who is ranked 109th in the world, advanced to the third round where he will face Gael Monfils of France who outlasted American John Isner 6-7 (5-7) 7-6 (7-3) 7-5.
Five-time champion Djokovic suffered a shock second-round loss to Japanese qualifier Taro Daniel, who sent the out-of-sorts Serb tumbling with a hard-fought win at the BNP Paribas Open.
The match was carried over from Saturday after rain force play to end early with Federer one set up and the scores locked at 2-2 in the second.
Djokovic is making a cautious return to the ATP Tour after stopping his 2017 season following Wimbledon due to a right elbow injury.
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Other seeded players who lost were ninth-seeded Lucas Pouille, who fell 6-4, 6-4 to Yuki Bhambri; 14th-seeded Diego Schwartzman, 7-5, 6-4 to Marcos Baghdatis; 21st-seeded Kyle Edmund, 6-4, 6-4 to Dudi Sela; and No. 24 seed Giles Muller, 6-3, 7-5 to Pierre-Hugues Herbert.
Djokovic shut down his season after Wimbledon in 2017 and despite not being at his best, made a decision to play at this year's Australian Open where he was ousted by South Korea's Hyeon Chung in the fourth round. But at the same time, I just didn't feel good at all.
"I just completely lost rhythm, everything", said Djokovic.
Federer, who finished off Federico Delbonis in a rain-disrupted match to reach the third round, said he understands how even a champion like Djokovic could be struggling to find his game so soon after having surgery.
"It is still early stages for Novak coming back and the first one after surgery".
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"And even though you don't have pain, you're still thinking about it, because it's been something that I have been feeling and dragging for over two years".
"Unfortunately I have to pull out", Nishikori said.
On the women's side, top-ranked Simona Halep came back to top 19-year-old Caroline Dolehide 1-6, 7-6 (3), 6-2 in just over two hours.
South African seventh seed Kevin Anderson also prevailed in his second round match, 7-5 6-4 over Russian Evgeny Donskoy.
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