The BSE Sensex fell for a fourth session on Wednesday as Hindustan Unilever was hit by worries over higher royalty payments, but non-banking financials rose after the government reached an agreement with the opposition on a banking amendment bill.
Trading was cautious a day after Standard & Poor's reiterated its warning that India faces a one-in-three chance of being downgraded to "junk" status over the next 24 months.
Data showed industrial output rose a stronger-than-expected 8.2 percent in October but it failed to bolster investor sentiment as analysts doubted if the growth rate could be sustained.
Traders are awaiting the Federal Reserve's policy meeting on Wednesday amid expectations for a new round of bond buying, while domestically, inflation data on Friday is watched for direction.
"The trend remains up but consolidation will continue as we have run up significantly since September, said Deven Choksey, MD, K R Choksey Securities.
"(The) Market would get more comfortable if rate cuts happen in January alongside passing of reforms bill," Choksey added.
The benchmark BSE index fell 0.16 percent, or 31.88 points to end at 19,355.26 points. The index has lost 0.7 percent over the past four sessions.
The broader NSE index fell 0.18 percent, or 10.80 points, to end at 5,888 points.
Hindustan Unilever was among the leading decliners, ending the day down 2.8 percent, following news that Unilever's Indonesian subsidiary has agreed to pay a higher royalty payment to Unilever Plc .
That raised worries Hindustan Unilever would also have to make a higher payment to its parent company.
Hindustan Unilever did not immediately respond to an email sent by Reuters.
Mortgage lender HDFC fell 1.7 percent on profit-taking after gaining 4.44 percent in previous two sessions.
HDFC shares have outperformed the index, gaining 14.77 percent since November, a month considered auspicious for buying homes.
NMDC shares fell 3.3 percent to 154.30 rupees as the government was in the process of selling up to $1.1 billion stake in the state-run miner at an indicative weighted average of 149.23 rupees.
However, non-banking financial companies rose on hopes that parliament will pass a banking amendment bill that would set the regulations required for opening up the lending sector to outside companies.
The optimism came after Finance Minister P. Chidambaram said the government has reached an agreement with the opposition, sending L&T Finance Holdings up 4.7 percent and Reliance Capital up 4.2 percent.
Reliance Industries gained 1.53 percent on hopes the refiner will agree to be audited by India's Comptroller and Auditor General (CAG) for its KG-D6 block, which has been a longstanding source of tension, several dealers said.
Tech Mahindra rose 3.9 percent after BT Group sold its remaining 9.1 percent in the Indian technology outsourcing services provider at 871 rupees per share, raising 115.7 million British pounds.
Auto shares rose on expectations of higher volumes as the year-end approaches and on hopes of price hike in January, dealers said.
Hero MotoCorp rose 2 percent and Bajaj Auto gained 2.5 percent.