Indian shares took a breather on Tuesday after a four-day rally which took the benchmark index to a 5-1/2 month high, but the undertone was firm on expectations of strong earnings from corporates and steady foreign fund inflows.
The rupee ended slightly lower as concerns about firm prices of oil, the country's key import, and a strengthening dollar kept the market subdued.
High prices of crude oil and its potential to stoke inflation weighed on bonds with yields at six-week highs.
The Bombay Stock Exchange's top-30 share index ended down 0.13 percent at 5,758.67 points, off a 5-1/2 month high.
"Foreign fund inflows are strong and that is keeping sentiment upbeat along with expectations of good earnings," said Jayesh Shroff, a fund manager with BOB Mutual Fund.
"But trade should be mostly in a range from here on till the results next week and then it will be news-driven," he added.
Foreign funds bought equities for a net $52.4 million on October 1, adding to net purchases of over $1.2 billion in the two previous months. They are betting on a strong performance by corporates on the back of a robust 7.4 percent economic growth in the year to the April-June quarter.
Among index heavyweights, Reliance Industries Ltd, India's top petrochemicals maker, was down 1.2 percent while state-run exploration firm Oil and Natural Gas Corp Ltd, India's biggest firm by market value, was flat. They account for some 28 percent of the main BSE index.
Firm crude oil prices, which were hovering above the $50 a barrel mark, and expectations that refiners would be allowed to raise product prices after the October 13 elections in the key state of Maharashtra, supported shares of oil companies.
State-run refiners Indian Oil Corporation Ltd rose 2.2 percent to 451.7 rupees, Bharat Petroleum Corporation Ltd gained 2.1 percent to 362.80 and Hindustan Petroleum Corporation Ltd added 1.6 percent to 332.2 rupees.
The rupee closed at 45.8600/8700 per dollar, below Monday's close of 45.8500/8550. It had appreciated by 0.55 percent in the last three sessions as portfolio investments picked up in anticipation of a robust October earnings season.
Federal bonds extended losses as investors cut positions ahead of a scheduled auction of 60 billion rupees of new debt.
Prices have been dropping sharply since last week after strong economic growth data buttressed a view that, with inflation hovering around 8 percent, the central bank may raise rates from three-decade lows sooner rather than later.
The yield on the benchmark 10-year bond, the 7.37 percent 2014 security rose to 6.5007 percent in evening trade, higher than its previous close of 6.4256 percent.
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