The BSE Sensex slipped after three straight days of gains on Friday. Markets tracked weak trade in Asia, where barring Japan's Nikkei average, most other indices traded lower.
At 09.30 a.m., the Sensex traded 28 points or 0.14 per cent lower at 19,737 while the broader Nifty benchmark was down 12 points to 5,997. The rupee traded sharply lower against the dollar at 54.82.
Indian markets have started 2013 on a strong note as investors bet the Reserve Bank of India (RBI) will cut interest rates later this month, and as the resolution to the so-called U.S. "fiscal cliff" negotiations have benefitted global markets. Foreign investors continue to bring in money after buying a net $24.37 billion last year.
Market analyst Ambareesh Baliga said signs of a pre-Budget rally are in the offing.
"The trend is up, money is flowing in, Q3 results should be better than the previous quarter, rate cut is expected in January... I don't know what will happen beyond April, but markets may definitely make a life-time high before then," he added.
Independent analyst Sarvendra Srivastava said the outlook will be positive till Nifty stays above the immediate supports of 5,940-5,950.
Metal stocks led the declines on the BSE. Banks, realty, auto and capital goods stocks also traded lower. However, IT stocks saw buying interest ahead of Infosys earnings announcement next week.
State run explorer ONGC was the top Nifty gainer, up 1.7 per cent followed by retailer BPCL, which rose 1.5 per cent. IT exporters - Wipro, HCL Tech, TCS and Infosys - traded with 0.5 -1.5 per cent gains.
34 stocks traded lower on the Nifty led by realty major DLF, which slipped 1.5 per cent, after an order by the Competition Commission of India. (Read: CCI modifies apartment buyers agreement in DLF case)
Iron ore miner Sesa Goa, energy utilities Tata Power and Gail India were the other big losers.
Shares in gold loan firms Manappuram Finance and Muthoot Finance saw strong gains. (Read: Manappuram, Muthoot Finance shares rally for 2nd day)
Asian shares fell on Friday, tracking overnight weakness in global equities after senior Federal Reserve officials expressed concerns about continuing to expand stimulative bond buying, but the dollar extended gains as U.S. debt yields rose. (Read: Asian shares drop on Fed minutes, dollar extends gain)
Minutes from the Fed's December policy meeting released on Thursday showed some voting members of the Federal Open Market Committee were increasingly concerned about the potential risks of the Fed's asset purchases on financial markets, even if it looked set to continue an open-ended stimulus program for now.
(With inputs from Reuters)