Foreign institutional investors, who supported the sharp rally in Indian shares in May, continued selling on Thursday, their fifth session of sales in the last six. Overseas investors sold Indian shares worth Rs 523 crore ($88.6 million) on Thursday, provisional exchange data showed.
The Sensex closed 0.07 per cent lower at 24,217.34 points. It fell 1.9 per cent in this week, but gained 8 percent in May. The Nifty ended down 0.08 per cent at 7,229.95 points. It lost 1.86 per cent this week, while gaining eight per cent during the month.
Banking stocks led the declines with the Bank Nifty falling 1.6 per cent on profit-taking. The index gained 15.1 per cent in May and investors were encashing positions ahead of the RBI policy meet, traders said.
State Bank of India fell 2.3 per cent, while ICICI Bank ended 1.3 per cent lower.
Tata Motors Ltd closed down 2.2 per cent after its earnings missed some analysts' estimates.
However, shares in defence equipment makers rallied on media reports of a potential increase in foreign direct investment limit in the sector from current 26 per cent.
Bharat Electronics gained 1.9 per cent, BEML surged 6.6 per cent and Pipavav Defence and Offshore Engineering Co rose 5 per cent.
Defensives such as pharma and healthcare stocks gained on value-buying. Hindustan Unilever gained 8.4 per cent, Dr Reddy's Laboratories added 3.2 per cent and Cipla Ltd ended 3.3 per cent higher.
Shares in Mahindra & Mahindra gained 4.97 per cent after its Jan-March earnings beat estimates.
Voltas Ltd surged 3.8 per cent after Jan-March earnings came in sharply ahead of some analysts estimates, led by strong margin expansion in its cooling products business.