Indian shares fell on Tuesday, as TCS led a sharp slide in IT stocks, already pressured ahead of the U.S. Federal Reserve's rate decision due on Wednesday, which could also determine the extent of foreign fund inflows into the market.

The blue-chip NSE Nifty 50 index lost 0.82% to 21,873.25, while the BSE Sensex shed 0.74% to 72,208.59, as of 10:40 a.m. IST.

Tata Consultancy Services sank about 3%, the most on the Nifty, on Tata Sons' plan to sell a $1.13 billion stake sale at a 3.7% discount.

TCS also weighed on the IT index, whose 1.85% slide was the most among the 13 major sectors.

The U.S. rate-sensitive IT stocks have dropped 3.3% this week as expectations of a Fed rate cut have receded due to recent hotter-than-expected inflation data.

Asian markets were also down ahead of the Fed decision, holding their losses even as the Bank of Japan, as widely expected, ended eight years of negative interest rates.

"The Fed's decision and commentary is important because the allocation of foreign portfolio investors to Indian markets will be dependent partially on the interest rate trajectory," said Anita Gandhi, director at Arihant Capital Markets.

Strong foreign inflows have helped the Indian markets power to record highs for the latter part of last year.

But that slowed recently due to concerns of overheated valuations, especially in the mid- and small-caps.

The small-caps were down 0.7% on the day and the mid-caps shed 0.9%, continuing their decline since logging their worst week in 15 months last week.

"There was some amount of overheating and valuations had soared in broader markets. The current bout of profit-booking is highly required," Gandhi said.

Among stocks, Paytm rose 5%, extending gains to a fourth session since it got regulatory approval to continue processing digital payments. ($1 = 82.9350 Indian rupees) (Reporting by Bharath Rajeswaran and Hritam Mukherjee in Bengaluru; Editing by Savio D'Souza)