The benchmark BSE Sensex on Thursday fell from its all-time level to settle the day 68 points lower at 27,940.64 as investors became cautious after excise duty on petrol and diesel was hiked even as inflation cooled off and factory output grew in signs of economic recovery.
The Sensex rose in early trade on hopes of rate cut after inflation softened to 5.52% in October.
Three-month high industrial production growth of 2.5% in September also boosted the sentiment, brokers said.
But soon profit-booking emerged after the government hiked excise duty on petrol and diesel prices by Rs 1.50 a litre each to mop up an additional Rs 13,000 crore in revenue.
Some investors fear this may weaken the fight against inflation, a broker said.
After a highly volatile trade, the bellwether index finally settled the day at 27,940.64, showing a loss of 68.26 points or 0.24% from Wednesday's close, snapping three days of rise.
The 50-share Nifty also lost by 25.45 points or 0.30% to 8,357.85.
On Wednesday, the benchmark index had ended at an all-time closing high of 28,008.90 and also hit intra-day high of 28,126.48 on sustained foreign funds inflows driven by economic reforms undertaken by the government recently.
Meanwhile, foreign institutional investors bought shares net of Rs 459.47cr on Wednesday as per the provisional figures issued by stock exchanges.
The 30-share index in the previous three days had gained by 140.27 points or 0.50% in the last three days.
"Indian equity markets cheered CPI and IIP with benchmark indices opening higher... But profit-taking was seen at higher levels.
"OMC (oil marketing companies) stocks witnessed profit booking... most banking shares were also weak on the index while IT and pharma stocks lifted the index," said Kiran Kumar Kavikondala, director and CEO, WealthRays Securities.
Stocks of state-run BPCL, HPCL and Indian Oil Corp ended up to 6.11% lower. ONGC was among the biggest Sensex losers, plunging by 2.03%, while RIL fell by 0.53%.
Major Sensex losers were SSLT (2.56%), Tata Power (2.47%), ONGC (2.03%), Gail (1.58%), Axis Bank (1.49%), Hero Motocorp (1.38%), HDFC (1.14%), SBI (0.84%) and ICICI Bank (0.83%).
Infosys rose by 1.77%, followed by Dr Reddy's Lab 1.01% and Cipla 0.91%.
Among the sectoral indices, Oil&Gas fell by 1.63%, followed by Realty 1.44%, Metal 0.76%, Bankex 0.71% and Auto 0.39%, while IT rose by 0.99% and Teck 0.74%.
The total market breadth turned negative as 1,733 stocks finished in the red, while 1,314 stocks closed in green. The total turnover dropped to Rs 3,529.31 crore from Rs 3,649.38 crore on Wednesday.
"The benchmarks were seen upholding sideways bias on Thursday as well, after the better than expected macro-economic data failed to trigger the directional move. In line with the key index, the sectoral indices too traded mixed whereas profit taking in the cash segment pushed the market breadth in the red," said Jayant Manglik, president of retail distribution, Religare Securities.
Sixteen scrips out of the 30-share Sensex pack ended lower while 14 others closed higher.
Asian markets were trading mixed.
Key indices in Hong Kong, Japan, Taiwan, and Singapore ended higher by 0.34-1.14%, while indices in China and South Korea finished lower by 0.34-0.36%.
European markets were trading higher as key indices in France, Germany and UK moved up by 0.31-1.01%.