Investors also booked profits in some of the recent outperformers that propelled indexes to record highs earlier this week, with some analysts voicing concerns about how fast shares have risen since last week.
The falls came despite data on Wednesday showing a sharper-than-expected drop in retail inflation and a slight expansion in industrial output, as analysts say expectations for an improving domestic economy are already largely priced in.
The Sensex fell 0.37 per cent, or 81.61 points, to end at 21,774.61 points, still near its record high of 22,023.98 points hit on Monday. The Nifty also fell 0.37 per cent, or 23.80 points to 6,493.10 points, near its all-time high of 6,562.85 points hit on Tuesday.
Foreign investors on Wednesday were net buyers for an eighteenth session out of the previous nineteen, with purchases of $250 million.
Despite continued buying by overseas funds, broader indexes fell after Infosys slumped 8.5 per cent. Chairman Narayana Murthy said revenue for the fiscal year ending March could grow at the lower end of the company's 11.5 to 12 per cent projection.
The fall on Thursday was Infosys' biggest daily percentage fall since April 12 last year when shares slumped 21.3 per cent after the IT outsourcer issued a disappointing forecast for full-year sales growth.
Meanwhile, shares in Sun Pharmaceutical Industries lost 5.19 per cent after the U.S. Food and Drug Administration (FDA) banned imports from the drug-maker's plant at Karkhadi in the western state of Gujarat.
Among other stocks, real-estate developers fell sharply with the BSE realty index losing 3.4 per cent on profit taking. DLF fell 6.03 per cent after gaining nearly 27 per cent so far this month, as of Wednesday's close.
However, some lenders gained, extending a recent rally. HDFC Bank rose 2.3 per cent, bringing its monthly gain to 10.9 per cent, while State Bank of India rose 0.4 per cent, bringing its gain so far in March to 7.8 per cent.
State-run oil marketing companies also gained sharply, with Indian Oil Corp. up 4.2 per cent, on media reports that the government may start distributing its oil subsidy for the October-December quarter starting from March 18.