The Nifty fell 0.6 per cent to mark its biggest fall since March 3, as interest-rate sensitive shares fell after wholesale inflation hit a three-month high, casting doubt a market that recently hit its life high.
Some of those concerns eased somewhat after data released after markets closed on Tuesday showed headline consumer price inflation accelerating more than expected, but analysts estimated core CPI remaining steady at around 7.9 per cent in March.
Foreign institutional investors, who have pumped in $4.8 billion into equities so far this year, became net sellers worth Rs. 363 crore on Friday for the first time since March 10.
Whether the rupee can sustain gains will likely depend a large degree on foreign flows, although for now analysts expect the currency to trade in a range.
The lack of buying support for the dollar in late trade also helped the rupee today, should continue to trade in a range and hold in a 59.80-60.60 band this week.
The rupee closed at 60.23/24 per dollar on Tuesday, compared with its Friday's close of 60.1750/1850.
The drop in shares kept the rupee under pressure, with data after the close of markets on Friday showing industrial output unexpectedly shrank 1.9 per cent year-on-year in February.
There was good demand for the dollar seen form oil importers, the largest buyers of dollars in the domestic currency market.But bunched up dollar inflows after financial markets were closed on Monday for a local holiday capped broader losses in the rupee.
Investors in India are looking forward to elections set to conclude next May. Standard and Poor's said on Tuesday the direction and pace of policy reforms, more than which political party takes control after elections, will have a bearing on the sovereign rating.
In the offshore non-deliverable forwards, the one-month contract was at 60.70 while the three-month was at 61.47.