The BSE Sensex and the Nifty snapped a four-session gaining streak on Monday as technology stocks fell on profit-booking, while automakers dropped after an industry body said car sales in India posted their biggest monthly slump in more than 12 years.
Stocks sensitive to interest rates also fell after Reserve Bank of India Governor Duvvuri Subbarao on Friday rejected high inflation as the "new normal, sparking concerns the central bank would be more hawkish on interest rates.
Shares were also hurt after a global risk rally that had sparked gains last week stalled, as weak economic data from China and worries about Italy took the shine off strong U.S. jobs numbers last week.
Investors are gearing up for January industrial output data due on Tuesday and February wholesale price inflation on Thursday, which will help set expectations ahead of the RBI policy review on March 19.
"IIP and WPI are important data points ahead of the RBI meet. After a strong rally last week the market is trying to search for direction, and will remain in this range," said Jagannadham Thunuguntla, head of research, SMC Investments and Advisors Limited.
The Sensex fell 0.19 percent, or 37.02 points, to end at 19,646.21, after hitting its highest close since February 2 on Friday and gaining 4.26 percent over the previous four sessions.
The Nifty fell 0.06 percent, or 3.35 points, to end at 5,942.35.
Software services exporters fell on profit-booking after gaining last week on rupee depreciation and improving U.S. economic outlook.
Tata Consultancy Services Ltd fell 1.1 percent after gaining 5.4 percent last week, while Infosys Ltd fell 0.8 percent after rising 1.94 percent.
Automakers fell after an industry body said on Monday that car sales in India slumped 25.7 percent in February, the biggest fall in more than 12 years and the fourth consecutive monthly slide.
Tata Motors Ltd fell 0.7 percent, while Maruti Suzuki India Ltd ended 0.8 percent lower.
Subbarao's comments on Friday hit rate-sensitive stocks, coming after some economists had argued that the RBI should adjust its policies towards an acceptance of persistently higher inflation.
ICICI Bank fell 0.7 percent, while HDFC Bank ended 0.3 percent lower.
However, among stocks that gained, shares in Ranbaxy Laboratories rose 1.1 percent after Nomura upgraded the stock to "buy" from "neutral" and raised its target price to 475 rupees from 415 rupees.
Berger Paints India rose 2.2 percent after it said in a statement that it would buy architectural operations of Sherwin Williams Paints India for an undisclosed sum.