By Abhishek Vishnoi
MUMBAI (Reuters) - The BSE Sensex and Nifty fell on Wednesday, retreating from record highs hit earlier in the session as investors pared positions in blue-chips such as Tata Motors after overseas investors marked their first sale of cash shares in three weeks.
Foreign institutional investors sold Indian shares worth 1.02 billion rupees ($16.5 million) on Tuesday, marking their first sale since Oct. 28.
Overseas investors have been key drivers of the stock market rally this year, buying a net $15.47 billion worth of shares so far in 2014, according to regulatory data.
But caution is now beginning to set in ahead of the winter session of the parliament scheduled to begin next week, when Prime Minister Narendra Modi's government is expected to push a slew of reforms including goods and services tax.
Investors are also looking forward to the Reserve Bank of India's policy review on Dec. 2, while also tracking global factors, including minutes of the U.S. Fed's policy meeting due later this week.
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"FIIs are making good profit on Indian shares after a long time, so expect 3-5 percent correction by December-end due to profit taking," said G. Chokkalingam, founder of Equinomics, a research and fund advisory firm.
The BSE Sensex fell 0.46 percent after hitting an all-time high of 28,294.01 earlier in the day.
The Nifty settled down 0.52 percent after rising to a record high of 8,455.65.
Blue-chips led falls amid profit-taking. The 50-share Nifty has gained 35.2 percent so far this year, making India the best performing equity market in Asia during the period.
Tata Motors fell 2.2 percent, while Sun Pharmaceutical Industries ended lower 1.9 percent.
ITC lost 0.7 percent, while Tata Steel ended 3.2 percent lower.
State bank of India lost 1.2 percent after rising 8.3 percent in the previous three sessions.
Reliance Industries fell 1.1 percent, Oil and Natural Gas Corp lost 1.7 percent, and Cairn India declined 2.7 percent.
Among gainers, consumer goods stocks rose on hopes falling inflation would lift spending, while lower raw material costs would aid margins.
Hindustan Unilever rose 1.1 percent and Britannia Industries advanced 2.1 percent.
New entrants on the MSCI India index rose ahead of rejig effective from the close of Nov. 25. Zee Entertainment gained 1.4 percent, while Motherson Sumi Systems ended up 0.1 percent.
(Editing by Subhranshu Sahu)