The BSE Sensex fell for a second consecutive session on Thursday as software services exporters, such as Infosys, were hit by continued worries about the global demand outlook and the impact of the recent rally in the rupee on foreign profits.
The session was volatile because of the expiry of September futures and options contracts at the end of the session.
Analysts continue to expect more downside as markets consolidate after hitting a 14-month high in September, following the slew of reforms announced by the government. Investors were also on hold ahead of the announcement of the government's borrowing calendar for the second half of the financial year ending in March due later today.
"The market may see some correction in the short term as it's overbought," said Paras Adenwala, principal portfolio manager at Capital Portfolio Advisors. However, Adenwala said gains could continue should the government announce additional fiscal or economic reforms.
The BSE Sensex fell 0.28 per cent, or 52.67 points, to 18,579.50 points, marking its second day of declines.
Since hitting a 14-month peak of 18,866.87 points on September 21, the BSE index has fallen 1.5 per cent.
The Nifty fell 0.25 per cent, or 13.95 points, to 5,649.50 points.
Technology stocks extended recent falls as investors remain worried about the global outlook, especially when the rupee has strengthened.
Euro zone worries have roared back into focus over the last week as the feel-good factor of recent central bank stimulus has given way to renewed uncertainty over Spain's willingness to submit to a politically painful rescue programme.
Infosys fell 1.5 per cent, after posting mild declines in each of the two previous sessions. Tata Consultancy Services fell 1.1 per cent.
Shares in Voltas dropped six per cent after the company told analysts the air-conditioner and cooling products maker was expecting more downside to its margins and revenue growth across its business segments.
Among gainers, UltraTech Cement gained 3.5 per cent, while drug maker Lupin added 1.9 per cent. Both stocks will replace Steel Authority of India and Sterlite Industries in the Nifty from Friday.
But SAIL fell four per cent and Sterlite fell 3.3 per cent, also underlining the negative sentiment prevailing on the materials sector even as valuations are at multi-year lows.
Fertiliser shares rose on hopes the government would raise subsidised urea prices. Rashtriya Chemicals & Fertilizers gained 5.7 per cent, while Chambal Fertilisers and Chemicals Ltd gained 4.8 per cent.
Sentiment was also helped by a more favourable outlook for winter crops after rainfalls picked up in the late monsoon season.
United Spirits gained 10.2 per cent on rising hopes the Indian spirits maker controlled by billionaire Vijay Mallya will clinch a deal to sell a stake to Diageo Plc.