The Sensex index fell for a fifth session on Thursday, with ITC slumping as index provider FTSE lowered its free float weighting and Hindustan Unilever extending falls on concerns it may have to pay higher royalty to parent Unilever Plc.
Foreign portfolio inflows touched $21.42 billion this year, helped by optimism over reform measures, but equities have started looking overbought to market participants, a concern underscored by the Nifty closing below the 5,900 level for the third day.
Profit-booking was higher as investors awaited the outcome of inflation numbers on Friday, which will set the tone for the central bank's policy meeting on December 18.
Wholesale prices likely rose 7.6 percent in November from a year earlier, compared with 7.45 percent in October, a Reuters poll showed.
"Inflation is really important as it may set the pace for a CRR cut at least in December, but rate cut would happen only in January," said Sandeep J Shah, CEO, Sampriti Capital.
Consumer inflation numbers have already risen, and wholesale price index cannot be looked in isolation, added Shah.
The Sensex fell 0.65 percent, or 126 points, to end at 19,229.26, its lowest close in two weeks.
The Nifty fell 0.62 percent, or 36.50 points, to end at 5,851.50, closing below the psychologically important 5,900 level for the third day.
Index heavyweight ITC fell 3.5 percent after FTSE lowered its free float weighting for the cigarette maker in its global equity index series, according to the website of the index provider.
Hindustan Unilever fell 1.9 percent on Thursday, down for the second day, on concerns that it may face higher royalty payments to its parent Unilever PLC .
Cement maker ACC fell 1.8 percent after the board approved payment of technology and knowhow fees to its parent Holcim Limited.
However, among stocks that gained, Tata Motors rose 4.1 percent, ahead of Jaguar Land Rover unit's wholesale volume numbers.
Shares in non-banking finance companies gained after the Reserve Bank of India unveiled draft capital guidelines for the sector that are seen less stringent than feared.
Mahindra and Mahindra Financial Services rose 1.2 percent, while LIC Housing Finance ended 0.3 percent higher.