Consequently, the key indices receded during the mid-afternoon trade session after touching new intra-day highs for the last 11 months.
The wider 51-scrip Nifty of the National Stock Exchange (NSE) slipped by 1.70 points or 0.02 per cent to 8,588.95 points.
The barometer 30-scrip sensitive index (Sensex) of the BSE, which opened at 27,976.14 points, traded at 27,968.38 points (2.30 p.m.) -- down by 8.14 points or 0.03 per cent from the previous close at 27,976.52 points.
The Sensex touched a high of 28,210.88 points and a low of 27,899.93 points during the intra-day trade.
The BSE market breadth was tilted in favour of the bears -- with 1,377 declines and 1,218 advances.
Both indices had ended deep in the red during the previous trade session on Tuesday due to profit booking, along with caution ahead of key global and domestic events.
Initially on Wednesday, the benchmark indices opened on a flat note. However, they soon rose in sync with their Asian peers, especially the Japanese indices.
Besides, increased chances of the GST (Goods and Services Tax) Bill getting passed during parliament's ongoing monsoon session, enhanced investors' risk-taking appetite.
Investors were hopeful about the bill's passage after the positive outcome of Finance Minister Arun Jaitley's meeting with his counterparts from the states on the issue on Tuesday.
The pan-India tax reform has been passed by the Lok Sabha but is stuck in the Rajya Sabha, where the government lacks a majority.
Nevertheless, caution ahead of the futures and options (F&O) expiry led to long liquidation and short covering which subdued the key indices.
In addition, volatility was flared before the outcome of the US Fed's FOMC (Federal Open Market Committee) meet.
The meet assumes significance as it will decide whether or not to increase interest rates. A hike in the US interest rates can potentially lead FPIs (Foreign Portfolio Investors) away from emerging markets such as India.
Further, a weak rupee, lower global crude oil prices and disappointing quarterly results eroded investors' confidence.
"Caution ahead of the FOMC meet's outcome and the volatility before the upcoming F&O expiry dragged the markets lower," Anand James, Chief Market Strategist at Geojit BNP Paribas Financial Services, told IANS.
According to Nitasha Shankar, Senior Vice President for Research with YES Securities, Indian markets turned volatile and choppy ahead of the F&O expiry.
"Broader markets also weakened marginally in line with the headline indices led by partial profit booking," Shankar noted.
"Pharma index continues to drag following disappointing set of numbers from Dr. Reddy's."
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