Shares of Sensex constituent NTPC, which tanked over 11 per cent, led power sector lower on worries the proposed electricity tariff regulation would hit earnings.
Bluechips, including ICICI Bank, Larsen & Toubro (L&T) and Bharat Heavy Electricals Ltd (BHEL), slid 3-4 per cent after market participants book profits in the backdrop of 618-point surge in Sensex in the previous three days. However, rise in IT stocks capped the index's losses.
The Sensex, which had climbed to an all-time closing high of 21,326.42 in the previous session, fell by 71.16 points, or 0.33 per cent to 21,255.26. Intra-day, the gauge moved between 21,175.08 and 21,327.75.
Trading sentiment was also dampened on a weakening Asian trend and lower opening in Europe as reports said Chinese industrial production rose less-than-estimated last month.
Apart from these factors, markets also saw selling pressure after Fitch expressed fears that the defeat of Congress in four of the five state assembly polls could lead to higher fiscal deficit target as the government would be constrained to curb expenditure.
The 50-share National Stock Exchange index Nifty fell by 31.05 points, or 0.49 per cent, to end at 6,332.85. It had climbed to a record high of 6,363.90 yesterday. Also, SX40 index, the flagship index of MCX-SX, dropped 18.59 points or 0.15 per cent to end at 12,616.20.
In PSU power shares, besides NTPC, NHPC, Power Grid and SJVN fell in 1-3 per cent range. Private sector peers, Reliance Power and Tata Power also logged losses.
"CERC has announced its draft tariff regulations for FY15-19...We see huge negative impact for NTPC mainly from shift of incentives to PLF from PAF and no tax grossing up of RoE. However, we see lower impact for PGCIL, NHPC and SJVN," said Amit Golchha, Research Analyst, Emkay Global Financial Services in a report.
Sectorally, besides BSE Power which fell 4.12 per cent, BSE Capital Goods index slipped by 2.98 per cent, BSE Banking index lost 1.78 per cent and BSE Realty index by 1.48 per cent.
* BSE index down 0.33 pct; NSE ends 0.49 pct lower
* Power utilities slip on draft guidelines for sector
* FIIs buy Indian shares, derivatives worth $1 bln
Indian shares fall on profit-taking after record high
(Reuters) Indian shares retreated on Tuesday from record highs hit in the previous session as a rally sparked by the strong showing by the key opposition party in state elections faded, with investors booking profits in blue-chips such as ICICI Bank.
Results on Sunday showed the Hindu nationalist Bharatiya Janata Party (BJP) swept three out of four key state elections held since last month, delivering a blow to the ruling Congress party and bolstering the prospects of opposition prime minister candidate Narendra Modi in national polls due by May next year.
Some of the caution setting in was also tied to the industrial output and consumer inflation data due on Thursday, which will help set expectations ahead of the central bank's policy review on Dec. 18.
Still on a positive note, foreign investors bought Indian cash shares and derivatives worth $1 billion on Monday, bringing their total for the year so far to over 1 trillion rupees.
"I think market should consolidate before it picks up once again on liquidity. A 25-basis-point rate increase by RBI is already factored in," said Paras Adenwala, managing director and principal portfolio manager at Capital Portfolio Advisors.
The benchmark BSE index fell 0.33 percent, or 71.16 points, to end at 21,255.26, retreating from its record high of 21,483.74 made on Monday.
The broader NSE index fell 0.49 percent, or 31.05 points, to end at 6,332.85, from an all-time high of 6,415.25 hit on Monday.
Both indexes snapped a three-day winning streak with other analysts uncertain about whether the rally can sustain this week.
"Indian shares can look at some consolidation as traders would digest sentiments, fundamentals, Fed tapering and RBI policy," said Brenda Kelly, analyst at IG Markets in London, late on Monday.
Shares that rallied on Monday turned into leading decliners on Tuesday. ICICI Bank Ltd fell 3.6 percent, Larsen and Toubro Ltd lost 4.1 percent, while Bharat Heavy Electricals Ltd ended 5 percent lower.
Bank shares fell 1.8 percent, retracing from their six-month high made on Monday.
Axis Bank Ltd fell 3 percent while State Bank of India ended 2.5 percent lower.
In addition, shares of electricity utilities dropped after the power regulator tightened certain rules for tariffs and operations for the sector in its draft 2014-19 guidelines. NTPC Ltd slumped 11.4 percent.
Apart from NTPC, Power Grid Corp of India Ltd fell 2.9 percent, while Tata Power Co Ltd declined 1.5 percent. However, among stocks that rose, Ess Dee Aluminium Ltd gained 7.3 percent, having earlier risen as much as 9.7 percent, after the central bank on Monday allowed the company to increase foreign investment limit on its shares.
FACTORS TO WATCH
* Tighter money market conditions, ECB stance buoy euro
* Brent rises toward $110; data shows China demand strong
* Stocks lose grip on gains, euro scales heights
* Foreign institutional investor flows