The BSE snapped a seven-day winning streak and shed 0.4 per cent in a choppy Thursday session, as traders locked gains after the recent sharp run, but a fall in outsourcers was offset by a rise in financials pack, which brushed off key rates hike.
India's central bank raised interest rates more aggressively than expected on Thursday, keeping up its fight against inflation, but signalled that it may be nearing a pause in its current tightening cycle.
The likelihood of a pause in rate tightening and hopes of better September-quarter earnings helped the bank index gain 0.6 per cent, and in part helped the main index scale a fresh 32-month peak for the fifth straight session.
Export-focused outsourcers led the losses as traders booked profits after the recent steep run up in the pack, which saw sector leaders Tata Consultancy Services and Infosys Technologies touching record highs on Wednesday.
The 30-share BSE index slipped 0.43 per cent or 84.62 points to 19,417.49, with 19 components losing ground. It had hit 19,636.66 points intraday, its highest since January 2008.
"The market treated the interest rate hike as a non-event. Domestic funds are booking some profits, but FIIs (foreign institutional investors) are showing strong interest," said Prakash Diwan, head of institutional business at Networth Stock Broking.
Diwan said buying in the last few sessions was skewed towards frontline stocks, while mid-caps did not participate much, as foreign funds typically prefer large-cap stocks.
"FIIs know where the growth is. India story is definitely going strong with robust economic growth and corporate fundamentals."
Foreign funds invested $14.7 billion in Indian equities so far this year, with $1.8 billion flowing in during the first half of this month.
Foreign portfolio inflows into India will not be impacted by the central bank's decision to hike policy rates, Montek Singh Ahluwalia, deputy chairman of the Planning Commission said in New Delhi.
The country's focus on infrastructure investment will help drive growth in its stock market, Thomas Mathew, managing director of state-run Life Insurance Corporation,
India's largest portfolio investor, told Reuters on Wednesday.
TCS and Infosys shed 2 per cent and 2.7 per cent respectively while Wipro dropped 0.9 per cent.
"Bankex is up because now there is a good possibility that RBI may pause in its monetary tightening after this hike," said Gaurav Dua, head of research at brokerage Sharekhan, referring to the banking sector index.
"RBI will wait and watch global situation before taking the next step."
The pack also cheered news of higher advance tax payments by State Bank of India and ICICI Bank, as indicated by a government source.
Top lender SBI rose 1.3 per cent while leading private lenders ICICI Bank and HDFC Bank declined 0.4 per cent and 0.8 per cent respectively.
Top mobile operator Bharti Airtel shed 2.7 per cent after data showed the company's subscriber additions in August were the slowest in nearly three years.
The 50-share NSE index shed 0.6 per cent to 5,828.70 points. The market breadth was weak, with declining shares outpacing advancing ones in a ratio of 1.9:1 in a relatively better volume of 480 million shares.
World shares as measured by MSCI and Thomson Reuters were down around 0.1 per cent each at 1041 GMT.