Top private sector firm Reliance Industries led the losses in the main index, while leading lender State Bank of India extended its losing streak after posting an unexpected slump in quarterly profit on Tuesday.
The 30-share BSE index closed 0.28 percent down at 18,086.20 points, its lowest close since March 22. Sixteen of its components fell on Wednesday, which was the third-straight day of losses in the main index.
The 50-share NSE Index lost 0.34 percent to 5,420.60.
‘The short-term market trend is weak technically,’ said D.D. Sharma, senior vice president at brokerage Anand Rathi in Mumbai, who expects Indian stock markets to remain ‘muted’ in the coming days.
Rise in interest rates to tame high inflation should hit manufacturing companies' profits and margins for the current quarter that ends in June, Sharma said, but expected inflation to gradually decline.
‘The long-term story remains intact,’ he said.
India's central bank has increased interest rates nine times since March last year. High inflation and the prospect of rising energy costs are likely to keep pressure on the central bank to raise rates when it reviews policy on June 16.
State-run refiners raised petrol prices by about 8.6 percent, a record increase, on Sunday. Diesel and cooking gas prices, which are controlled by the government, are also expected to go up soon. ‘In the short to medium term, there will be pressure on markets due to worries about inflation and interest rate hikes. Monetary loosening is not going to happen in a hurry, which will keep the market's upside capped,’ Gajendra Nagpal, CEO of Unicon Financial, said.
State Bank of India, the country's top lender, fell 2.4 percent to 2,355.75 rupees, which was its lowest close since July 7 last year. The shares had slid 7.7 percent on Tuesday.
Brokerages including Morgan Stanley, Goldman Sachs and Bank of America-Merrill Lynch cut their target price on the bank after its March-quarter profit plummeted on higher provisions, operating costs and taxes.
Morgan Stanley said in a note that credit costs could rise sharply if lending rates remain at current levels and the economy slows.
Energy major Reliance Industries fell 2 percent to 901.85 rupees, its lowest close since Feb. 10. The stock, which has the heaviest weight on the benchmark index, has shed nearly 15 percent this year, mainly on concerns over decline in gas output from its blocks off India's east coast.
Bajaj Auto, the country's second-largest motorcycle maker, closed 1.7 percent lower after its March-quarter net profit nearly tripled mainly due to a one-time gain.
Tata Motors fell 3.4 percent to 1,149.15 rupees.
In the broader market, there were more than two losers for every gainer on volume of about 439 million shares.
By 1045 GMT, the MSCI world equity index was up 0.54 percent, while the Thomson Reuters global stock index gained 0.36 percent.
STOCKS THAT MOVED
State-run oil refiners Indian Oil, Bharat Petroleum and Hindustan Petroleum each fell more than 4 percent as global crude prices rebounded after falling for two sessions.
Shares in Coal India dropped 6 percent to 373.70 rupees, after rising more than 26 percent this year.
Bajaj Finserv Ltd closed 5 percent higher at 521.55 rupees after reporting late on Tuesday quarterly net profit soared.