By Abhishek Vishnoi
MUMBAI (Reuters) - The BSE Sensex retreated on Thursday from a near three-year high of above 21,000 on profit-taking, with software exporters including Tata Consultancy Services taking the brunt of the selling.
The Sensex touched 21,039.42 before slipping in the red for the day. The last time it was above 21,000 was on November 8, 2010. The index's all-time high is 21,206.77, hit in January 2008.
Shares have benefited from a return of global risk appetite as poor U.S. data has pushed back expectations of any tapering of the Federal Reserve's monetary stimulus until 2014.
Foreign investors have continued to buy local shares, remaining net buyers for a 14th consecutive session. Provisional exchange data showed a net purchase of 6.44 billion rupees on Wednesday, bringing the total to about 117.34 billion rupees during that period.
However, investors are also taking the opportunity to book profits especially on recent outperformers.
"India's economic fundamentals are not supporting the market, allocations just due to global factors are not justified. At some point that money will also find it difficult to allocate further," said Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance.
Beyond 21,000 valuations become very difficult to justify, Srivastava added.
The focus is now on the RBI's policy review on October 29, at which it is expected to raise its key rate by 25 basis points. Five key states are also slated to go for elections in November and December, ahead of general elections due by May.
The Sensex fell 0.2 percent, or 42.45 points, to end at 20,725.43, after earlier rising as much as 1.3 percent.
The broader Nifty fell 0.23 percent, or 14 points, to end at 6,164.35, falling for a third consecutive session.
In IT shares, Tata Consultancy Services Ltd (NSI:TCS.NS - News) fell 2.5 percent, Wipro Ltd (NSI:WIPRO.NS - News) lost 4.4 percent, while Infosys Ltd (NSI:INFY.NS - News) ended 0.5 percent lower on profit taking.
The NSE index for IT shares had risen 44.8 percent in 2013 compared with the Nifty's returns of 4.4 percent as of Wednesday's close.
Hindustan Unilever Ltd (NSI:HINDUNILVR) fell 0.8 percent after Unilever (LSE:ULVR.L - News) (AEX:UNA.AS - News) on Thursday reported slower sales growth for the third quarter, providing further evidence that a slowdown in emerging markets is hitting demand for its consumer goods.
Jet Airways (NSI:JETAIRWAYS) fell 1.7 percent after the company reported its worst quarterly loss on Wednesday, squeezed by high fuel costs and a weaker local currency.
Exide Industries Ltd (NSI:EXIDEIND.NS - News) shares fell 1.6 percent adding to Wednesday's 2.2 percent decline after the company said its September-quarter net profit fell 1.3 percent to 1.19 billion rupees.
(Editing by Anand Basu)