The BSE benchmark touched a high of 20,204 but finally ended down 114 points at 19,989.
Nifty ended down 25 points at 6,050.
The Reserve Bank of India (RBI) lowered its growth projection for the Indian economy as new investment demand continues to remain muted. The banking regulator now expects the domestic gross domestic product (GDP) growth at 5.5% in the current financial year.
It had earlier projected 6.5% growth in July, 2012. But lowered it to 5.8% three months later as investment demand slowed, consumption spending moderated and export performance eroded.
The central bank said that it has reduced the policy repo rate, the rate at which RBI lends money to scheduled banks, under the liquidity adjustment facility (LAF) by 25 basis points from 8% to 7.75% with immediate effect.
RBI has also decided to reduce the CRR of scheduled banks by 25 basis points from 4.25% to 4% of their net demand and time liabilities (NDTL) effective the fortnight beginning February 9, 2013.
"We believe policy stance going ahead would be growth oriented getting clear indications that with growth coming at 5.5% and inflation moderating there is still hope for rate cut going forward so our advice to fixed income investors to continue invested in fixed income funds which would play to their advantage and new investors should continue to look at incremental investments and we believe that the curve will be much lower than it is a year from now.
"So it makes sense to go long duration," said Lakshmi Iyer, head of fixed income &
Meanwhile, Asia markets gained on Tuesday, with Japanese stocks recovering from early weakness on the back of a solid rally in banks, while Chinese shares retreated from recent gains.
Nikkei has added 0.4% at 10,867. Shanghai Composite, Kospi and Taiwan Weighted jumped around 1% each.
European equities rose on Tuesday, following strenght in Asian markets where the spotlight fell on the possibility of further policy stimulus in China, though trade looked set to be cautious given fears over Spain's banks. Key benchmark indices in UK, France and Germany were up by 0.74% to 1.23%.
Banks had firmed up on hopes of loan growth going forward as when they lower lending rates post the central banks decision to ease key policy rate. However, the index slipped on profit booking and ended down 0.6% at 14,576.
Metal shares which were tracking marginal gains on the London Metal Exchange, lost their sheen and ended down 0.7% at 10,551.
Realty shares had gained on hopes of revival of home sales on the back of lower interest rates on home loans. However, it erased all gains and led the losers list ending down 2.2% at 2,173.
Auto shares, which had gained on hopes that vehicle sales growth would improve going forward on the back of lower interest rates on auto loans, were down 1.2% today.
Broader markets declined in line with the benchmark indices. BSE mid-cap index was down 0.6% at 6,935. Small-cap index declined 64 points to 7,162.
Coal India surged 1.7% to Rs 348, bucking the general trend. ITC added 1% at Rs 304, followed by Hero MotoCorp and ICICI Bank.
On the other hand, Hindalco slumped 3% at Rs 115. Bajaj Auto shed 2.6% at Rs 2,031. HDFC Bank, Bharti Airtel, BHEL and GAIL ended down around 2% each.
BSE market breadth was fairly negative. Out of 2,974 stocks traded, 1,686 shares declined while 1,163 shares advanced in trades.
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