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Sensex retreats from record high; defensives drag

People walk outside the Mumbai Stock Exchange building February 10, 2011. REUTERS/Vivek Prakash/Files

By Swati Bhat

MUMBAI (Reuters) - The BSE Sensex snapped a five-day winning streak on Tuesday, retreating from a record high hit in the previous session, led by falls in defensives such as ITC and on profit-taking in recent outperformers such as Dr. Reddy's Laboratories.

Shares also came under pressure after an HSBC survey showed activity at Indian services firms continued to shrink, while input prices increased at the quickest pace in 16 months, raising concerns inflation was rising despite a weaker economy.

Still, strong buying by foreign funds since the U.S. Federal Reserve delayed the withdrawal of its stimulus programme in mid-September continues to support sentiment. Foreign funds have purchased nearly $4 billion worth of shares since September 18.

"Profit-booking had to happen some day and it happened today, so it was not something unexpected," said Sudip Bandyopadhyay, managing director and chief executive at Destimoney Securities Pvt Ltd.

"There is no major concern from the market perspective due to today's selling. Foreign funds will continue to come to India until the Fed taper," he added.

The benchmark index closed down 1.25 percent at 20,974.79, retreating from a record high of 21,321.53 in a special trading session on Sunday. Markets were closed on Monday for a local holiday.

The broader Nifty closed down 1.02 percent at 6,253.15.

Profit-taking hit shares in the pharmaceutical sector, with Dr. Reddy's Laboratories Ltd (NSI:DRREDDY.NS - News) falling 3.03 percent, after marking an all-time high last week.

Meanwhile, consumer goods companies extended their recent weakness amid worries about their sales outlook. Shares in ITC Ltd (NSI:ITC.NS - News) closed down 3.51 percent.

Other defensives such as Hindustan Unilever Ltd (NSI:HINDUNILVR) fell 1.96 percent, while Dabur India Ltd (NSI:DABUR.NS - News) dropped 2.9 percent.

Banking shares also fell with the NSE banking index down 1 percent on worries about future rate hikes after two hikes in as many months by the central bank. Losses were largely led by ICICI Bank (NSI:ICICIBANK.NS - News), which fell 3.13 percent, and Bank of Baroda (NSI:BANKBARODA), which dropped 2.1 percent.

However, IRB Infrastructure Developers Ltd (NSI:IRB.NS - News) gained 12.2 percent after Bank of America-Merrill Lynch reinitiated its coverage of the company with a "buy" rating, citing attractive valuations after the stock underperformed the BSE index by 42 percent in the last 12 months.

Ashok Leyland Ltd (NSI:ASHOKLEY.NS - News) gained 2.22 percent, while Bharat Heavy Electricals Ltd (NSI:BHEL.NS - News) fell 1.6 percent a day ahead of their earnings.

(Editing by Subhranshu Sahu)