The BSE Sensex and Nifty fell on 3 December' 2012, retreating from 19-month highs, as recent outperformers such as HDFC Bank were hit by profit-taking on worries over parliament's impending vote on foreign direct investment in multi-brand retail.
However, shares in organised retailers such as Pantaloon Retail India Ltd rose on speculation over the outcome of Tuesday's vote.
Dealers say the probability of a December rally will increase if the vote goes in favour of the ruling Congress-led alliance. If not, the newfound optimism around recently announced reform measures is seen petering down.
"If the FDI vote goes through, it will trigger another round of rally in the markets," said V.K. Vijayakumar, investment strategist at Geojit BNP Paribas.
If FDI in retail is cleared then the government will be in a position to initiate a large number of other reforms, including insurance and pension, he added.
The BSE index fell 0.18 per cent, or 34.58 points, to end at 19,305.32 after gaining 4.5 per cent in the previous four sessions.
The broader NSE index fell 0.15 per cent, or 8.90 points, to end at 5,870.95, finding resistance near the psychologically important 5,900 level.
HDFC Bank Ltd fell 2.4 per cent on profit-taking after its shares rose 6.35 per cent in the previous three sessions.
Among other recent outperformers, telecoms operator Bharti Airtel also fell 1.8 per cent after gaining 8.6 per cent in the previous three sessions.
Stocks considered defensive such as ITC Ltd fell as traders pared positions in favour of other sectors.
ITC fell 0.8 per cent, while Hindustan Unilever Ltd ended 0.3 per cent lower.
Among stocks that gained, retailer Pantaloon gained 9.5 per cent ahead of the vote in parliament.
Shares in India's Jet Airways rose 5.2 per cent after a report in Mint newspaper said the airline will soon seek regulatory approval to tweak its ownership pattern to facilitate a stake sale to Etihad Airways.
Shares in Maruti Suzuki India Ltd, India's largest car maker, rose 1.1 per cent after November sales grew 12.5 per cent on year to 103,200 units, sustaining the recovery in sales witnessed in October.
Utility vehicle maker Mahindra & Mahindra also rose 1.1 per cent after the company reported an 18 per cent rise in November sales.