Most Asian stock markets were lower and MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.3 percent before recouping losses.
The losses came as investors awaited the two-day Federal Reserve meeting that begins Tuesday. The U.S. central bank is widely expected to raise interest rates, which would be its fourth hike this year.
Following a week of disappointing economic data from China and Europe, U.S. and European shares were hammered on Monday after a poor holiday outlook from major online retailer ASOS and U.S. data that suggested home-builder sentiment had sunk to multi-year lows.
India's NSE index fell 0.42 percent to 10,842.85 by 0634 GMT on Tuesday, while the benchmark BSE index was 0.43 percent lower at 36,118.42. Each index had gained 3.8 percent in the previous five sessions.
"The market was doing well, so it is a normal phenomenon that there will be some profit-booking," said R.K. Gupta, managing director at Taurus Asset Management in Mumbai.
Domestic markets had gained for the last five sessions following state election results and as the government swiftly appointed a new Reserve Bank of India (RBI) governor following the former central bank chief's sudden exit.
A hike in U.S. interest rates coupled with a potential rate cut by the RBI could spur foreign outflows from India, Gupta said.
"The Reserve Bank may cut rates by 50 basis points in February to boost industrial output, and simultaneously if the Fed increases rates by 25 basis points, the arbitrage gap will be narrowed," he said. "In this scenario, the reverse flow of the dollar cannot be ruled out."
Financials and IT stocks fell the most on Tuesday, with Infosys Ltd and HDFC Bank Ltd among the top laggards on the NSE.
Zee Entertainment Enterprises Ltd was the top decliner with a 5.2 percent slide.
IL&FS group companies - IL&FS Engineering and Construction Co Ltd, IL&FS Transportation Networks Ltd and IL&FS Investment Managers Ltd - rose between 4.8 percent and 9.3 percent after the group initiated steps to monetise its domestic roads vertical.