Market continued to trade with weakness in early afternoon trade as caution prevailed ahead of the outcome of the Reserve Bank of India's (RBI) monetary policy meeting. At 12:30 IST, the barometer index, the S&P BSE Sensex, was down 186.03 points or 0.51% at 35,948.28. The Nifty 50 index was down 63.05 points or 0.58% at 10,806.45. Auto stocks declined.

Provisional data released by the stock exchanges showing that local and foreign funds, both, were net sellers of Indian stocks yesterday, 4 December 2018, also weighed on the sentiment. The trading activity on that day showed that the foreign portfolio investors (FPIs) sold shares worth a net Rs 55.89 crore. Domestic institutional investors (DIIs) sold shares worth a net Rs 521.38 crore.

Domestic stocks edged lower in early trade as key index pivotals dropped. Key benchmark indices traded with weakness in morning trade after a subdued start to the day's trading session. Weakness persisted on the bourses in mid-morning trade.

The S&P BSE Mid-Cap index was down 0.95%. The S&P BSE Small-Cap index was down 0.96%.

The market breadth, indicating the overall health of the market, was weak. On the BSE, 711 shares rose and 1576 shares fell. A total of 133 shares were unchanged.

Auto stocks declined. Maruti Suzuki India (down 1.27%), Mahindra & Mahindra (M&M) (down 1.33%), Eicher Motors (down 1.13%), Ashok Leyland (down 2.52%), Escorts (down 3.15%), Bajaj Auto (down 0.53%), Hero MotoCorp (down 0.31%) and TVS Motor Company (down 0.15%) edged lower.

Tata Motors lost 2.7% after the company announced that S&P Global Ratings has lowered the credit rating of the company and luxury car unit, Jaguar Land Rover Automotive Plc (JLR), citing weaker profitability at JLR. S&P cut its rating on Tata Motors' issuer credit and senior unsecured notes to 'BB-' from 'BB'. The ratings remain on negative watch. The announcement was made after market hours yesterday, 4 December 2018.

Kesoram Industries lost 10.75%. Kesoram Industries decided at a board meeting to spin off its tyre business (Birla Tyres ) by demerging this undertaking as per the demerger provisions in the Income Tax Act, 1961 into a resulting company, Birla Tyres (BTL). Upon grant of the requisite approvals, BTL will also become a listed company with its shareholding pattern mirroring Kesoram. The appointed date for such demerger will be commencement of business 1 January 2019. Kesoram shareholders will get one share of Rs 10 each of Birla Tyres for each share held in the company. The announcement was made after market hours yesterday, 4 December 2018.

On the political front, state assembly elections will be closely watched. Polling in Rajasthan and Telangana will be held tomorrow, 7 December 2018. Assembly elections in Madhya Pradesh and Mizoram were held on 28 November 2018. The election to the 90-member Chhattisgarh Assembly was held in two phases 12 and 20 November 2018. Counting of votes will be held across all the five states on 11 December 2018.

Overseas, Asian stocks dropped in the wake of the biggest slide in stocks on Wall Street. Activity in China's service sector expanded at a faster pace in November, a private gauge showed Wednesday. The Caixin China services purchasing managers' index rose to 53.8 in November from a 13-month low of 50.8 in October, Caixin Media Co. and research firm Markit said.

US financial markets will remain closed Wednesday for a national day of mourning to honor former President George H.W. Bush. US stocks finished sharply lower Tuesday, logging their worst day in nearly a month, as skepticism mounted over the significance of an agreement reached by the US and China to postpone new tariffs.

Doubts surrounding the US and China's ability to achieve a concrete deal to avoid new, or expanded, bilateral tariffs are rising, as investors focused on the lack of specific concessions made by China at last weekend's G-20 meeting in Argentina, where President Donald Trump and Chinese President Xi Jinping met.