The BSE Sensex fell as recent gainers such as Reliance Industries were hit by profit-booking, while IT stocks fell due to concerns about their outlooks on a day in which the expiry of derivatives led to record volumes in the futures and options (F&O) segment.
Turnover in F&O on Thursday reached around 4.2 trillion Indian rupees, an all-time high, several traders said, as the number of contracts rolled over from the December contracts to the January series fell.
According to data culled from traders, the more actively traded National Stock Exchange saw around 62 percent of contracts rolled over, marking a decrease from around 72 percent carried over in November.
The reduced rollovers lead to higher volumes as investors settle the contracts. Traders said the higher number of trade settlements was likely intended to book profits in long contracts after strong gains in domestic equities this year.
"There seems to be the lot of unwinding of the long outstanding contract to start with new slate, resulting in the highest turnover on Thursday," said K K Mital, head of portfolio management at Globe Capital.
0.48 percent, or 93.66 points, to end at 19,323.80.
The broader Nifty fell 0.6 percent, or 35.50 points, to end at 5,870.10, ending below the psychological level of 5,900 points.
Caution also prevailed with only three trading sessions left in 2012, as the U.S. "fiscal cliff" negotiations continue, while the strong foreign buying that has helped sustain Indian stocks could peter out as investors close their books.
The BSE Sensex has gained around 25 percent this year, backed by about $24 billion in foreign buying across domestic equities.
Although expected interest rate cuts in January could support shares, investors also remain wary about growth, especially after the country's prime minister on Thursday called a five-year plan for average growth of 8 percent "ambitious.
Among decliners on Thursday, Reliance Industries Ltd fell 1.3 percent hit by profit-taking after shares gained 4.4 percent so this month as of Wednesday, trumping a 0.2 percent fall in the Nifty.
Other shares that were hit by profit-taking included Mahindra & Mahindra Ltd , which fell 1.5 percent, and Hindustan Unilever Ltd , which ended down 1 percent.
Technology shares extended falls on caution ahead of their earnings next month and uncertainty about their 2013 outlooks.
Infosys Ltd shares fell 1.2 percent, while Tata Consultancy Services Ltd lost 0.9 percent.
However, among gainers, Tata Motors Ltd shares gained 1 percent as hopes for a better outlook in 2013 for key unit Jaguar Land Rover led investors to roll over their derivatives positions, according to traders.
Clariant Chemicals India Ltd shares gained 1.5 percent after the company said SK capital will buy its textile chemicals and paper specialties unit. Financial details were not provided.
Kalpataru Power Transmission Ltd shares gained 2 percent after the company said in a statement it received orders worth over 9.55 billion rupees.