Foreign investors sold index futures worth Rs 2,817 crore and cash shares worth Rs 1,571 crore on Tuesday, signalling unwinding of long positions amid global risk aversion.
Stocks slumped more than 3 per cent in the previous session, posting their biggest daily loss since the rupee crisis in 2013 as a continued slide in oil prices hit emerging markets.
"We cannot rule out partial profits of 2014 moving out," said Nirakar Pradhan, chief investment officer at Future Generali India Life Insurance.
The Nifty remains susceptible to profit-taking after it gained 31.4 per cent last year, its best since 2009.
The BSE Sensex and the Nifty fell as much as 0.8 per cent each on Wednesday, marking their lowest intraday level since December 17 and on track for their third session of losses.
The euro hit a nine-year trough as collapsing oil prices and worries about the world economy drove skittish investors into the arms of safe-haven sovereign debt.
The quarterly earnings season kick-starting with Infosys' results on January 9, the Reserve Bank of India's rate decision and the budget in February are next key triggers.
Stocks favoured by overseas investors led losses. ICICI Bank fell 3.3 per cent, while Tata Motors lost 1.5 per cent. Lupin, which is looking to increase its foreign investment limit, fell 1.5 per cent.
Copyright: Thomson Reuters 2015