The Sensex and the Nifty fell over 0.4 per cent, dragged down by blue chips as caution prevailed ahead of the US Federal Reserve's policy statement due later in the day that is expected to give direction on interest rates there.
Overall sentiment was weak as the Fed is expected to lay the groundwork for its first interest rate hike in nearly a decade.
Analysts say a rate hike by the Fed could force overseas investors to cut positions. Foreign investors were the backbone of the NSE index's record-setting rally last year, investing $16.1 billion. FIIs have invested $5.1 billion so far this year, exchange and regulatory data showed.
"The market is likely to trade range-bound. Strengthening of the US dollar is a concern and the Fed event will decide the future course for the time-being. Nifty is likely to trade between 8,500 and 9,000 in the medium term," said Deven Choksey, managing director, KR Choksey Securities.
The 30-share BSE index Sensex fell 114.26 points or 0.4 per cent at 28,622.12 and the 50-share NSE index ended down 37.4 points or 0.43 per cent at 8,685.90.
Among BSE sectoral indices, power index fell the most by 1.09 per cent, followed by IT 0.94 per cent, TECk 0.77 per cent and capital goods 0.72 per cent. On the other hand, oil & gas index was the star-performer and was up 0.69 per cent, banking 0.48 per cent, metal 0.4 per cent and healthcare 0.23 per cent.
Top five Sensex gainers were Reliance 1.39%, SBIN 1.34%, Hero MotoCorp 0.81%, Coal India 0.75% and SSLT 0.57%, while the major losers were NTPC 3.11%, BHEL 2.2%, Tata Motors 2.00%, Wipro 1.87% and ONGC 1.5%.
Metal and mining stocks were among the gainers, with Sesa Sterlite rising 0.57 per cent after the environment ministry lifted a ban in place since 2012 as part of a crackdown on illegal mining.
Reliance Industries gained after BNP Paribas upgraded the stock to "buy" from "hold" and increased the price target to Rs 980.
However, Tata Motors fell as its key unit Jaguar Land Rover reported lower-than-expected sales numbers for February.
Bharat Heavy Electricals Ltd fell 2.2 per cent on reports that a state electricity board scrapped a key power project tender.
European shares followed Asian stocks higher on Wednesday and the dollar held steady before a Federal Reserve meeting that’s expected to lay the groundwork for the first increase in US interest rates in nearly a decade.
The pan-European FTSEurofirst 300 stocks index rose 0.2 per cent at 1,587.40 points, led by Spanish fashion giant Inditex, which reported a rise in 2014 profit.
MSCI’s main index of Asia-Pacific shares outside Japan rose 1.9 per cent.