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Indian blue-chip index Nifty 50 posted its biggest drop in five weeks on Wednesday and small- and mid-caps stocks also declined as investors booked profits ahead of key U.S. and domestic economic data.

The benchmark index NSE Nifty 50 settled 1.11% lower at 21,951.15, while the BSE Sensex shed 1.08% to 72,304.88.

They have shed 1.2% this week after gaining nearly 2% in the past two weeks, during which the Nifty hit record-high levels.

Bouts of profit-booking will continue at these levels, said Anita Gandhi, founder and head of institution at Arihant Capital Markets.

Globally, investors' focus is now squarely on U.S. inflation data on Thursday, which comes amid a sharp pullback in expectations of deep and early U.S. interest rate cuts. [MKTS/GLOB]

On the same day, data is expected to show India's growth likely moderated to 6.6% in the October-December quarter. A robust macroeconomic outlook, sustained domestic inflows and healthy corporate results have fuelled the Nifty's recent rally.

India's monthly derivatives expiry is also on Thursday and Gandhi expects that to add to the markets' volatility, which is hovering near 10-month highs.

The broader, more domestically-focussed small- and mid-caps lost about 2% each.

"Multiple asset managers are stopping taking in funds in the segments, while the market regulator has sought more disclosures from funds," said Samrat Dasgupta, CEO of Esquire Investment Advisors.

All the 13 major sectors logged losses. State-owned banks shed 2.3% while the heavyweight financials dropped 1%.

Energy and oil and gas stocks lost 2.3% and 2.08%, respectively, dragged by Reliance Industries.

Later in the day, the oil-to-retail conglomerate is expected to announce the merger of its media assets with Disney's India media assets, Reuters reported.

Oil marketing companies Bharat Petroleum, Hindustan Petroleum and Indian Oil lost 2.5%-4.5%, on concerns over likely moderation in earnings.