The BSE Sensex snapped a three-day winning streak on Tuesday, retreating from two-year highs, as Hindustan Unilever slumped after posting disappointing volumes growth, while Cairn India Ltd was hit by worries about a slower production ramp-up in a key block.
HUL results were in contrast with a series of upbeat reports from blue chips such as Infosys Ltd , which had sparked a round of profit-taking in shares.
Earnings results from HUL and Cairn offset the impact of Finance Minister P. Chidambaram's comment during meetings with foreign investors in Hong Kong that the government remained committed to pro-growth policies and reforms.
Results of blue chips such as Larsen & Toubro on Thursday and Maruti Suzuki on Friday will set the trend for markets, while the Reserve Bank of India's policy review on January 29, when the central bank is widely expected to cut interest rates by 25 basis points, will be key next week.
"It was mostly profit booking and disappointment on HUL numbers which led to the fall in the market," said G. Chokkalingam, executive director and chief investment officer at Centrum Wealth Management.
"The uptrend remains intact, as earnings season would remain robust," Chokkalingam added.
The benchmark BSE Sensex ended 0.6 percent, or 120.25 points, to end at 19,981.57, after hitting its highest since January 2011 on Monday.
The broader Nifty fell 0.56 percent, or 33.80 points, to end at 6,048.50, a day after hitting its highest since January 6, 2011.
Hindustan Unilever Ltd , the Indian unit of Anglo-Dutch firm Unilever Plc , fell 3.3 percent.
India's largest consumer goods maker fell despite posting a 16 percent jump in third-quarter net profit, hurt by low volume growth and a rise in royalty payments.
Cairn India Ltd shares fell 2.3 percent after a Kotak report said its management indicated a slower ramp-up in production from its Rajasthan block.
Ashok Leyland fell 2.85 percent after Jefferies downgraded India's second-biggest bus and truck maker to "underperform" from "buy", citing slower demand for trucks from Southern India.
Kotak Mahindra Bank rose 1.55 percent after its December quarter earnings rose 24.6 percent to 5.77 billion rupees from a year earlier.
Pantaloon Retail Ltd gained 9.7 percent after RBI eased restrictions on the purchase of shares in the company by foreign institutional investors as well as non-resident Indians and persons of Indian origin.