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Indian shares settled flat on Tuesday, erasing early gains as a drop in financials and auto stocks offset a rally in information technology stocks.

The NSE Nifty 50 shed 0.07% at 24,123.85, while the S&P BSE Sensex was flat at 79,441.45.

Both the indexes rose about 0.4% each to record high levels at the open.

"It's imperative to recognise that the market is overly stretched, necessitating caution and vigilance rather than complacency," said Sameet Chavan, head of research at Angel One.

Financial-linked indexes like banks, financial services and private banks lost 0.5%-1%. They had gained 7%-8% in June.

Financial and banks' recent outperformance, as compared to the benchmarks, has likely hit a pause, said Ajit Mishra, senior vice president of research at Religare Broking.

Kotak Mahindra Bank trimmed losses to 2.13% after clarifying that U.S. short-seller Hindenburg Research was never an investor in its K-India Opportunities Fund.

The stock had lost about 4% earlier in the session, after Hindenburg said Mauritius-registered unit of Kotak Bank created and oversaw the offshore fund structure used by its investor partner to bet against Adani group, in a response to a show cause notice from India's markets regulator.

Auto stocks lost 0.76%, snapping a three-session winning streak. Tata Motors and Ashok Leyland shed about 2% after posting drop in June monthly sales.

IT stocks rose 1.17%, adding to their 2% jump on Monday after slightly cooler U.S. inflation data boosted expectations of a Federal Reserve rate cut in September.

Larsen & Toubro rose 2.83%, on a report that the infrastructure major's unit got orders worth $4 billion from Saudi Arabia's state oil company Aramco.

Trading platforms declined after the market regulator asked market institutions like exchanges to levy uniform charges on brokers and not on volumes.

Angel One, 5Paisa Capital, SMC Global Securities and Motilal Oswal Financial lost between 0.3%-9%.