The blue chip NSE Nifty 50 index closed 1.27% lower at 14,721.30, while the benchmark S&P BSE Sensex fell 1.12% to end at 49,801.62. Both indexes have now posted four straight sessions of losses.

India is dealing with a fresh surge in COVID-19 cases, led mainly by the western state of Maharashtra. The country needs to take quick decisive steps soon to stop the resurgence, Prime Minister Narendra Modi said on Wednesday.

A rise in U.S. bond yields has also limited gains for Nifty and Sensex this month to about 3%, versus a 6.6% jump in February.

"If U.S. bond yields remain at such elevated levels, then there is a likelihood that we may see foreign institutional investors selling," said Anita Gandhi, director at Arihant Capital Markets in Mumbai.

In domestic trading, heavyweight stocks such as HDFC Bank and Reliance Industries fell 1.1% and 2.2%, respectively, and were the top drags to the Nifty 50.

"Some profit booking is also taking place, as at higher levels, stocks have run up too fast too soon," said Rusmik Oza, head of fundamental research at Kotak Securities in Mumbai.

Financial and energy stocks were the top losers. The Nifty Financial Services Index, Nifty Bank Index, and the Nifty energy index shed between 1.17% and 3.11%.

SBI Cards and Payment Services closed down 4.3%, after the Mint newspaper reported https://bit.ly/3txERj1 that U.S. private equity firm Carlyle Group Inc will sell a stake worth up to 37.30 billion rupees ($514.28 million) in the Indian credit card distributor.

Broader global markets were down, as investors waited to see whether the U.S. Federal Reserve would signal a faster path toward policy normalisation than previously expected.

($1 = 72.5280 Indian rupees)

(Reporting by Anuron Kumar Mitra in Bengaluru; Editing by Shailesh Kuber)

By Anuron Kumar Mitra