The BSE Sensex slipped 0.25 percent on Monday dragged by profit-taking, after last week's best rally seen in nearly two-and-a-half years, and on gnawing doubts over the government's ability to usher in retail-sector reforms amid tough political opposition.
Shares in retailers fell and the business community rounded on the government after the ruling Congress party put on hold plans to open up the country's $450 billion retail sector to foreign supermarkets. Pantaloon Retail (PART.NS) plunged 12.9 percent, its biggest single-day fall in over two years, while Trent (TREN.NS), a Tata group firm, fell by 3.26 percent. Shoppers Stop (SHOP.NS), however, bucked the trend, adding 2.1 percent, rebounding from a 9-percent slide seen in early trade.
Cigarettes-to-hotels conglomerate ITC (ITC.NS), which fell 1.14 percent, and leading private lender ICICI Bank (ICBK.NS), which shed 1.03 percent, were among others that skidded as risk-wary investors booked profits and stayed away from fresh buying.
The markets have been impacted by the uncertainty over the foreign investments in the retail sector. This is mostly a sentimental issue as traders are not sure whether the policy would be implemented, said Alex Mathews, head of research at Geojit BNP Paribas Financial Services.
The traders are also not taking large positions, as Tuesday is a market holiday due to a Muslim religious festival, and due to the political wrangling over the policy reform.
The main 30-share BSE index .BSESN closed 0.25 percent lower, or 41.50 points at 16,805.33, with 17 of its components closing in the red.
The benchmark, which is one of the world's worst performers this year having fallen 18 percent since the start of January, had logged its best week since July 2009 on Friday, on prospects of a revival in foreign fund inflows and expectations of a pick up in domestic growth.
Even though, the markets may perform reasonably well in December, I doubt whether the momentum could be sustained after the New Year, said Samir Gilani, head of equities at Mape Securities. I think issues still persist hurting investment sentiment, Gilani added.
Asian shares and the euro steadied on hopes European leaders would agree on a definitive plan to solve the euro zone's debt crisis at a crucial summit this week, with sentiment also getting a lift from Italy unveiling austerity steps.
European stocks rose early on Monday, adding to last week's 8.5 percent jump, on growing hopes of a sweeping solution to the euro zone debt crisis as French President Nicolas Sarkozy and German Chancellor Angela Merkel meet ahead of a key summit.
Other big losers in the local market included Indiabulls Real Estate (INRL.NS), which fell 4.19 percent, country's No. 3 steelmaker JSW Steel (JSTL.NS), which shed 3.92 percent and Shree Renuka Sugars (SRES.NS) that slid 3.34 percent.
The 50-share NSE index .NSEI was down 0.22 percent at 5,039.15 points. In the broader market, 679 gainers were ahead of 733 losers on a low total volume of about 498.36 million shares.
The MSCI's broadest index of Asia Pacific shares outside Japan .MIAPJ0000PUS was up 0.26 percent and Japan's Nikkei .N225 was up 0.60 percent.
STOCKS ON THE MOVE
* Man Industries (India) Ltd (MIND.NS) shares jumped as much as 6.8 percent, after the steel pipes-maker said it won export orders worth 5.15 billion rupees for supply of large-diametre pipes for the oil and gas sector.
Ashok Leyland (ASOK.NS) shares closed up 5.8 percent, after the bus- and truck-maker said on Saturday its November vehicle sales jumped 53 percent.
MAIN TOP THREE BY VOLUME
* IFCI Ltd (IFCI.NS) on 23.78 million shares
* Indiabulls Real Estate (INRL.NS) on 23.13 million shares
* Suzlon Energy (SUZL.NS) on 16.18 million shares