The BSE Sensex fell on Friday on profit-taking after the government expectedly won a vote for foreign investment in retail in the Rajya Sabha, while technology stocks such as Infosys extended declines on worries over the sector's revenue outlook.
While Parliamentary Affairs Minister Kamal Nath said victory in parliament vote on retail opens way for financial sector reform bills to be taken up next week, some market participants argue that the reform optimism-led buying may give way to a technical correction.
The Sensex rose 26.1 percent in 2012 as of Thursday's close, outperforming all its peers among the BRIC nations.
Optimism around reform measures by the government has been rewarded by foreign inflows of $20.51 billion this year, but on the flip side, equities have now started looking overbought based on technical analysis indicators, dealers say.
"Market may see some profit booking on technicals but we would be buyers on declines as there are enough triggers for market to perform in the form of other bills in the parliament," said G. Chokkalingam, Chief Investment Officer, Centrum Wealth Management.
The benchmark Sensex fell 0.32 percent, or 62.70 points, to end at 19,424.10, while gaining 0.43 percent for the week on the government's reform push.
Sensex is trading in the "overbought" territory, with its 14-day relative strength index above 70 for the sixth day.
The broader Nifty fell 0.4 percent, or 23.50 points, to end at 5,907.40, but gaining 0.46 percent for the week.
India's inflation data for November and factory output data for October scheduled to be released on Wednesday are also key data points to determine the near term direction ahead of the RBI's monetary policy meeting on December 18.
Among the decliners, Infosys fell 0.73 percent on concerns over its growth outlook.
Infosys' dollar revenue growth outlook of 5 percent for the year ending March 2013 could be under threat, Chief Executive S.D. Shibulal was attributed as saying by UBS in an investor meet.
Infosys closed down 0.73 percent, Tata Consultancy Services ended 1.29 percent lower while HCL Technologies fell 1.8 percent.
Nomura also warned that the possibility of an organic revenue growth outlook cut by Infosys in the third quarter of current fiscal year remains high .
It prefers companies with current business momentum like HCL Technologies , Cognizant Technology Solutions and Tata Consultancy Services .
Hexaware Technologies fell 9.25 percent, marking its biggest single day fall since February 24, 2011, after it lowered its fourth-quarter revenue outlook.
The company now expects revenue for the December quarter at $92 million, down from an earlier outlook of $94.7 million to $96.5 million.
Indian drugmaker Claris Lifesciences Ltd fell 3.8 percent on profit booking, after it said it will form a joint venture with Japan's Otsuka Pharmaceutical Factory and Mitsui & Co Ltd for its medical infusion drugs business in India and emerging countries.
Retail stocks ended mixed - Pantaloon Retail India rose 1.4 percent while Shopper's Stop fell 1.9 percent after the Rajya Sabha approved FDI in supermarkets.
However among gainers, shares in Maruti Suzuki India rose 1.85 percent on media reports of price hike in January.
Among other auto gainers, Tata Motors rose 0.4 percent while Mahindra and Mahindra ended up 1.11 percent.
Dealers said January may see a lot of auto manufactures going for price hike after December inventory gets sold off.
Shares in Shriram Transport Finance Co rose 0.6 percent after Morgan Stanley added the stock to its Asian banks model portfolio with 5 percent weight.