Investors booked profits in recent outperformers such as State Bank of India and Tata Motors, although gains in other sectors such as capital goods helped offset those losses.
Although overseas investors have underpinned sentiment, the pace of buying has slowed. Foreign institutional investors bought shares worth Rs. 213 crore on Monday, having bought $67.58 million worth on Thursday.
Analysts warn markets could be headed for a period of range-bound trading. Derivative contracts will expire on Wednesday while markets will remain closed on Thursday as Mumbai heads to the polls in the on-going general elections.
The Sensex closed 0.03 per cent lower at 22,758.37, after gaining as much as 0.39 per cent to hit an all-time high of 22,853.03 earlier in the day.
The Nifty ended 0.03 per cent down at 6,815.35, having earlier advanced as much as 0.3 per cent to hit a record high of 6,838.
State Bank of India fell 1.14 per cent after having gained 36 per cent since the end of January to Monday's close on expectations the central bank would keep interest rates on hold.
Interest-rate sensitive auto makers also fell. Maruti Suzuki fell 0.64 percent after gaining 25 per cent since the end of February until Monday's close.
Capital goods stocks extended recent gains as dealers cited good buying by foreign investors.
Larsen and Toubro ended 1.8 per cent higher, adding to its 4.2 per cent gain on Monday, while Bharat Heavy Electricals rose 0.24 per cent.
Oil and gas stocks were among other gainers on the back of value buying, with heavyweights such as Reliance Industries closing up 0.85 per cent and Oil and Natural Gas Corp. ending 1.01 per cent higher.
Wipro lost 2.87 per cent, adding to its 6.8 per cent fall of Monday as the stock continued to remain under pressure after a weak IT services outlook.