Shortly after RBI announced a cut in short-term lending rate by 0.25 per cent and a surprise 0.25 per cent cut in cash reserve ratio, the 30-share Sensex gained over 100 points to touch day's high of 20,203.66.
Soon, a bout of profit-booking emerged in rate sensitive stocks that had logged gains recently on hopes of RBI delivering a rate cut after nine long months, dragging the index down to 19,990.90, a loss of 112.45 points or 0.56 percent, at close.
"Markets cheered the rate cut news by going above key levels. However, as the news was discounted in recent rally, it came down. There are different factors at play," said Anand Rathi, Founder & Chairman, Anand Rathi Financial Services.
The Sensex had gone up by 400 points in the past 14 trading sessions on hopes of rate cut.
In a "somewhat surprise move", cutting the CRR by a further 0.25 per cent to 4 per cent will add around Rs 18,000 crore of liquidity into the banking system, said Richard Iley, Chief Asia Economist, BNP Paribas.
Brokers also said sentiment was subdued after RBI projected a lower economic growth for current fiscal amid some investors trimming positions ahead of derivatives expiry.
The 50-share National Stock Exchange index Nifty closed 24.90 points, or 0.41 per cent, lower at 6,049.90, after touching the day's high of 6,111.80.
Among banks, State Bank of India fell by 1.32 per, HDFC Bank by 2.54 per cent, Bank of India 4.01 per cent, Bank of Baroda by 2.64 per cent and Yes Bank by 1.92 per cent.
The realty sector index suffered the most by losing 2.07 per cent, followed by oil and gas index by 1.35 per cent and Auto index dropped by 1.12 per cent. Besides, two index heavyweight stocks -- RIL and Infosys -- also ended lower.
The RBI trimmed the economic growth projection for the current fiscal to 5.5 per cent, from 5.8 per cent estimated earlier.
Selling was strong with 12 out of 13 sectoral indices closing down by up to 2.07 per cent. Only FMCG index finished higher.
Kishor P Ostwal, CMD, CNI Research Ltd said: "Nifty support still lies at 6000 and if broken then we can test 5850."
Globally, Asian markets ended mixed as key benchmark indices in Taiwan, China, Japan and South Korea closed with gains while from Hong Kong and Singapore ended with losses.
European stocks were trading steady to slightly weak in afternoon trade.
Moving to the local market, 22 scrips out of 30-share Sensex pack declined. Major losers were Hindalco (2.7 pc), Bajaj Auto (2.62 pc), HDFC Bank (2.61 pc), Bharti Airtel (2.43 pc), BHEL (2.12 pc), Gail India (1.98 pc), RIL (1.68 pc), Tata Steel (1.68 pc), Tata Motors (1.59 pc), Wipro (1.43 pc), SBI (1.32 pc), Sun Pharma (1.28 pc) and M&M (1.03 pc).
However, ITC rose by 1.73 per cent and Coal India by 1.62 per cent.
Among the sectoral indices, the BSE-Realty fell by 2.07 per cent, followed by BSE-Oil&Gas 1.35 per cent and BSE-Auto 1.12 pct.
"Significantly, various government reform measures drew favorable response from the RBI as the later expressed confidence of an upturn of the investment cycle on the back of this. This points to a more coordinated fiscal and monetary policy response going forward that augurs well for economy," said Motilal Oswal, CMD, Motilal Oswal Financial Services.
Market breadth today was, however, negative as 960 scrips finished with losses while 786 closed with gains. Total market turnover rose sharply to Rs 2,608.50 crore from Rs 2,009.83 crore yesterday.
Meanwhile, Foreign Institutional Investors (FIIs) picked up shares worth a net Rs 783.56 crore yesterday as per provisional data from the stock exchanges.
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