The consolidation for last two sessions after fresh record highs indicated that investors may prefer to stay on sidelines ahead of earnings and Union Budget.
Benchmark indices recovered in the last hour of trade as investors turned cautious after crude oil prices hit fresh three-year high.
Banks and auto stocks drove the market lower but that was offset by sharp rally in IT stocks ahead of TCS and Infosys earnings later this week.
The 30-share BSE Sensex snapped a four-day winning streak to close down 10.12 points at 34,433.07 while the 50-share NSE Nifty fell for the first time in last seven sessions, ending down 4.80 points at 10,632.20.
The consolidation in the last two sessions after fresh record highs indicated that investors may prefer to stay on sidelines ahead of earnings and Union Budget 2018.
"The focus now is expected to clearly shift to the Q3 earnings season, wherein result outcomes would dictate the trend of not just the respective stock prices but also the market in the near-term," Jayant Manglik, President, Religare Broking said.
Nikhil Kamath, Co-Founder and Head of Trading, Zerodha said: "The momentum at the current juncture is bullish, and we would not recommend entering short positions at this juncture."
The sell-off, however, could be possible due to continued rally in crude oil prices and if there is implementation of long-term capital gain taxes in Union Budget, according to him.
The broader markets also closed flat with negative bias as about 1,594 shares declined against 1,322 advancing shares on the BSE.
Nifty IT was the biggest gainer among sectoral indices, rising more than 2 percent ahead of TCS and Infosys earnings. Infosys, Wipro, HCL Technologies and Tech Mahindra gained 1-3 percent.
TCS rose 3.6 percent as the IT major will announce numbers tomorrow evening. A CNBC-TV18 poll expects profit to remain flat and revenue growth in constant currency to be over a percent.
Coal India gained 1.4 percent on top of 6 percent rally in previous session. CLSA upgraded the stock to Outperform from Underperform with increased target price at Rs 335 (from Rs 260 per share) as the big price hike in non-coking coal lifted earnings outlook.
ONGC gained half a percent after Brent crude oil prices crossed USD 69 a barrel, the highest level since December 2014. IOC and BPCL were mildly lower but HPCL gained 1.75 percent.
Among banking & financials, HDFC, SBI, Bajaj Finance, Kotak Mahindra Bank, Axis Bank, Yes Bank and ICICI Bank lost 0.2-1 percent but IndusInd Bank gained half a percent ahead of earnings tomorrow.
Jindal Steel & Power rallied 5.6 percent after global investment firm Citi reiterated its Buy call on the stock and raised target price to Rs 375 from Rs 219 per share as the stock is significantly undervalued from long-term perspective. Speed of execution at Angul w.r.t commissioning is a big positive surprise, it feels.
Monte Carlo Fashions and Indian Terrain Fashions were up 4-6 percent after the Cabinet allowed 100 percent foreign direct investment in single-brand retail via automatic route.
The Cabinet Committee also approved 100 percent FDI in construction under automatic route and investment up to 49 percent under approval route in Air India and allowed FIIs/FPIs to invest in power exchanges via primary market.
Lupin was up 0.3 percent on approval from USFDA for Tamiflu capsules that has market size of USD 468 million in US as of October 2017. The drug is used to treat influenza A & influenza B.
Alkem Labs rallied nearly 6 percent as the USFDA issued establishment inspection report for Baddi (Himachal Pradesh) for September 2017 inspection.
Container Corporation gained nearly 7 percent after Railway Board revised its freight rate for transportation of coal & coke that will be effective January 15, 2018. Simplex Infrastructures climbed 2.8 percent on bagging order from MMRDA worth Rs 1,080 crore.
Glenmark Pharma was up 2 percent as the management at JP Morgan conference said it expects US, India, Europe & API to contribute over 80 percent of sales by 2021 and to scale up speciality business in US by 2021. It sees profit margin at 23 percent by 2021 & 25 percent by 2025 versus 20 percent currently.Global markets were mixed in trade as investors await corporate earnings.